Brexit Britain should look to create a partnership with Switzerland
A tie-up with Switzerland makes sense for post-Brexit Britain, and would create a vitally important global financial centre, says Matthew Lynn.
We need a trade deal with the US. We need finally to make peace with Michel Barnier, and come to an agreement with the EU. We need to secure access to markets around the world so that we can still export globally. As the deadline for ending our transitional deal with the EU draws closer and closer, there are lots of different deals that Britain needs to negotiate in a hurry. But one is perhaps easier than any of the others and potentially more valuable: a UK partnership with Switzerland to create a global powerhouse in financial services.
A powerful force in banking
With just 8.5 million people, Switzerland is far from the largest country in the world, but its incredible prosperity makes it more important than you might imagine (it ranks 99th in the world in terms of population, but 20th by total GDP). More significantly, just like the UK, it is a powerful force in banking and money management. As a recent report from TheCityUK highlighted, Britain and Switzerland between them dominate global exports of financial services. UK financial exports are $82bn and Swiss exports are $23bn. Combined, that dwarfs the US at $68bn, Germany at $16bn and France at just $1.5bn. The US, of course, has a massive finance industry, but it mostly services its domestic market, while the rest of Europe hardly competes at all. But London, Edinburgh, Zurich and Geneva are all outward-looking, global financial hubs, focused on working with companies and investors around the world.
Here is the important point. Both Switzerland and the UK are now outside the EU. And both countries either have been, or will be, excluded from its single market in financial services. It remains to be seen what kind of deal can be agreed with the UK, but the EU has made it very clear it doesn’t want the City to keep the passporting rights that allow its firms to sell right across Europe, so it looks as if we will be excluded. Likewise, last year the EU locked Switzerland out of the single market in financial services in a failed attempt to whip the Swiss into line with its own rules. As it turned out, it didn’t make a great deal of difference. Instead of trading Nestlé’s shares in Frankfurt, you had to trade them in Zurich instead, but the Swiss bourse continued to outperform most of the rest of Europe as it usually does.
Huge rewards for both countries
There is a natural deal to be done. The UK already has a series of bilateral agreements in place that will preserve access to each other’s markets after our transitional deal with the EU comes to an end. But we should go a lot further than that. The two countries are natural allies and partners. A UK-Swiss tie-up has the potential to create the world’s most important financial hub.
Between them, the UK and Switzerland could create their own single market in finance. It would set its own rules and standards by agreement between the central banks and regulators in both countries. British firms should be allowed to operate completely freely in Switzerland, and vice-versa. Both markets should be thrown completely open to investors and companies from around the world. The legal systems, reputation and stability of both countries means those standards would immediately be accepted globally.
It is a big prize, with huge rewards for both countries. A UK-Swiss partnership wouldn’t necessarily be the biggest financial centre in the world. Wall Street would still be larger and Shanghai will in time move into first place as China’s economy becomes the biggest in the world. But it would be the biggest international centre and one few investors could ignore. It would be a magnet for just about every company in Europe that wanted to tap the global capital markets and the gateway for American and Chinese businesses that wanted to raise money from the rest of the world. And it would be 50 or 100 times more important than Frankfurt or Paris, which would put all the heated debate about securing a trade deal with the EU by the end of this year in perspective.