Brexit: Theresa May ‘pleading’ with EU for City access to single market, Michel Barnier says

Theresa May has been reduced to “pleading” with the EU to give British financial firms access to sell services into the single market after Brexit without having to follow European regulations, the EU’s chief negotiator has said.

Speaking in Sofia on Thursday Michel Barnier said Britain would face new border checks and disruption from leaving the bloc, and that the UK was more dependent on Europe for trade than vice-versa.

In a speech Mr Barnier rejected Theresa May’s call for continued trade in financial services between Britain and the EU “based on the UK and EU maintaining the same regulatory outcomes over time”.

“I can perfectly see the UK's logic and interest in pleading for a system of ‘mutual recognition’ and ‘reciprocal regulatory equivalence’,” Mr Barnier said at a finance conference in the Bulgarian capital. “This is, indeed, what the single market achieves!”

“‘Everything must change so that everything can stay the same’, to paraphrase Lampedusa. But this will not work. The UK has decided to withdraw from the Union. It wants to be sovereign and be able to set its own rulebook, to have its own supervision and enforcement system.

“In doing so, the UK will move away from EU rules. It will not accept common EU supervision and enforcement tools. These are precisely the essential building blocks of our post-crisis financial regulation. They ensure that the internal market can exist and function correctly.

“The EU understands that the UK does not want to become a 'rule-taker'. But the UK also needs to understand that the EU cannot accept mutual market access without the common safeguards that underpin it.”

Mr Barnier added that relying on Britain to regulate services sold into EU markets was “not something that any country in the world would accept”. He described Brexit as “a lose-lose situation”, telling his audience: “I do not see added value in Brexit and so far, nobody has shown us any.”

“Outside of the customs union and the single market, there can be no frictionless trade. Businesses will be faced with non-tariff barriers and border checks that do not exist today,” the chief negotiator warned.

Allowing British firms to sell services into the EU is crucial for the UK because around 80 per cent of the British economy comes from providing services, with about 43 per cent of British exports heading to the EU in 2016. The Government has said it want any trade deal with the EU to cover services.

Speaking at the same event Mr Barnier said the cost of Brexit “will be substantially higher for the UK than for the EU”, noting that in terms of “trade dependency” the EU27 accounts for around 50 per cent of UK export and imports, while the UK market accounts for 7 per cent of EU exports and 4 per cent of imports.

The Brussels Brexit chief also brushed away claims by British commentators that European businesses "desperately needs the City of London" for finance. He cited research by the European Central Bank that any problem caused by losing access to London's banks "appears limited" and said the claim was "not what we hear from market participants, and is not the analysis that we have made ourselves".

In her Mansion House speech last month Ms May called for a “comprehensive system of mutual recognition” where both blocs pledged to keep their regulations equivalent to one another to facilitate trade. She said that under such a system “UK law may not necessarily be identical to EU law, but it should achieve the same outcomes”.

The Prime Minister proposed the approach in the hope that the EU would give Britain greater market access despite its departure from the single market.

David Davis on Wednesday also told a committee of MPs that he believed such a system of “mutual recognition” could underpin the solution to the Northern Ireland border.

The prime minister's Brexit red lines – leaving the single market, customs union, jurisdiction of the European Court of Justice, and refusing to keep free movement – have however limited the closeness of the future economic trading relationship with the EU. Mr Barnier has previously said such an approach is only compatible with a free trade agreement similar to that the EU has with Japan, a country on the other side of the world.