andreas dombret : the future relationship between germany and the uk in finance after brexit speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at uk finance, london, 8 february 2018. * * * 1. introduction ladies and gentlemen thank you for your kind introduction, and thank you for the invitation to talk about financial services after brexit. although i am in london to talk about finance issues, i have to confess that the united kingdom, and especially london, has always been much more to me than just business. this is the birthplace of the industrial revolution and the modern market economy – and the centre of the first wave of globalisation in the 19th century. and this great country and this wonderful city are where the future is made : a place of rare art and cultural diversity and of economic dynamism and innovation. so i am more than happy to be here with you today. when i read the news of the brexit vote, i was shocked. as i looked at the news, i simply couldn ’ t believe it. i imagine i was not the only one among us. it ’ s needless to say that i respect the decision. yet i am convinced that the uk and the eu going separate ways will be a tremendous loss for both sides. 1 and that ’ s why the state of shock had to be just a very brief moment. we all have to do our best during the coming months to find pragmatic ways to establish a new, respectful, and friendly partnership. today, i will talk about the formal aspects of this future partnership in the realm of finance. however, formalities alone will not make for a partnership founded on mutual trust and amity. what is equally important is the direct involvement of citizens and businesses – because, in the end, this is what underscores friendship and economic partnership. that is why this visit here today is so important to me. i will start by outlining where we are in the talks about a future agreement and will then discuss the odds of something more than no deal happening. given that a “ no deal ” on financial services is – like it or not – a realistic outcome, i will then discuss what pragmatic approaches to this new reality are feasible from my point of view. 2. where we are : the debate on financial services since the leave vote in june 2016, we have seen a steady decline in expectations of how close economic integration between

##sation, more competition, a greater weight of the private sector in the economy, etc. to increase their growth potential. and, on the other, the countries with more inflationary tendencies should, as i said a couple of weeks ago in zaragoza, pursue their own structural reforms, reforming labour institutions, the rental market, etc. so that increases in demand, arising from relatively low rates, cannot generate inflation. the celebration of these ten years is taking place just as the global macroeconomic scenario has undergone a deep - seated change as a result of the financial crisis, leaving it covered in great uncertainty and powerful recessionary tendencies. now, those who are against a single monetary policy underscore the uneven impact that changes in the world economy can have on euro area members, as these are deprived of the macroeconomic stabilisation instrument that national monetary policies provided. once again, this is not an argument against emu but one in favour of accelerating structural reforms. but let us first highlight the huge benefits of emu precisely in the current crisis. can anyone imagine how the 16 euro area countries would have weathered the international financial storm had they retained their 16 currencies? anyone can appreciate the scale and seriousness of the financial problems these countries would have faced had each one retained its currency. remember what happened in the early 1990s when the effects of the us recession took some time to be felt in europe, but eventually did so with unusual virulence. amid the serious challenges arising from german reunification, the lack of a coordinated monetary policy response on this side of the atlantic then led to massive speculation against exchange rates and to a major foreign exchange crisis, which some did not hesitate to call the collapse of the european monetary system. this speculation ultimately imposed enormous costs for all the countries involved. this will not happen again now. at this time of enormous uncertainty, the key institution of the monetary union, the ecb, has reacted in an exemplary fashion. in the space of five months it has managed to reduce the euribor from 5. 3 % to 2 % through changes in monetary policy, despite the increases in spreads arising from the financial crisis. and it has further adopted a policy of unlimited liquidity provision, in coordination with other central banks, as illustrated by the agreements for liquidity provision in currencies other than the euro. the other european economic authorities have also reacted forcefully to support the financial system, to safeguard its functioning and to stimulate the various economies. amid these global difficulties, cooperation and