Germany is trying to mitigate market turmoil from the UK leaving the EU without a deal by giving British financial firms a chance to continue operations in the country and making relocation more viable.
As the bloc girds itself against potential fallout from the UK’s political crisis, chancellor Angela Merkel’s cabinet approved new rules that allow Bafin, Germany’s financial regulator, to set transition arrangements for UK banks, insurers, and other financial companies to the end of 2020.
Germany also sought to boost its appeal as a banking hub by loosening its rigid hire-and-fire laws for top dealmakers.
Germany urged British MPs to accept the deal that’s been agreed with the EU, as the only alternative is a disorderly exit.
The country’s export-led economy is particularly exposed to trade disruptions.
“We don’t have much time, but we do still have a little bit of time,” chancellor Merkel said in remarks to politicians in parliament in Berlin.
Under the draft legislation, Germany will let UK-based financial institutions continue EU passporting rights to then end of 2020. The extensions are to maintain existing contracts and will be granted by Bafin on a case-by-case basis.
In addition to possible disruptions for individual companies from a no-deal Brexit, “the mass ending of financial-market contracts, or their transfer to companies that have the required permits, could also lead to market turmoil and cause risks for financial-market stability”, the draft legislation says.
Germany is also easing job- security rules for senior financial executives at large, system-relevant firms.
For managers with a base salary of more than €234,000 in western Germany, employers no longer have to legally justify the grounds for a termination.
“It will thereby be easier for these institutions to separate from their managers to avert risk for the overall financial system,” according to the finance ministry.
Meanwhile, a decision about delaying the UK’s exit beyond the scheduled March 29 date — nor of publishing formal or legal assurances to the prime minister over the backstop issue — can be made until January, EU diplomats said. An emergency summit might need to be called in the new year to do that, one said.
The EU has long thought that keeping Theresa May in her post was the best chance of getting the Brexit deal approved and preventing a disorderly exit by the UK. However, officials in Brussels and national capitals believe they have gone as far as they can and are wary of interfering in domestic politics at such a sensitive time.
One senior diplomat said the EU considered UK politics an “absurd drama” and patience was wearing thin.
With huge opposition to the transition agreement among UK MPs, the EU says it’s open to providing some additional language but won’t unpick the draft treaty.
“We do not have any intention of changing the exit agreement,” Merkel said in parliament in Berlin.
May was due to join the other EU leaders for a summit in Brussels starting later today.
EU leaders plan only a limited response this week. They will issue a statement following their discussion which might provide help to get the withdrawal agreement eventually passed in the UK parliament but European diplomats acknowledge privately that any steps they take are unlikely to be enough to win over UK MPs.
They say that contingency planning for a no-deal outcome is now well under way.
“As time is running out, we will also discuss the state of preparations for a no-deal scenario,” European Council president Donald Tusk said in a letter to leaders ahead of the summit.
While the EU is open to providing fresh assurances over the backstop agreement that aims to prevent a hard border in Ireland, they won’t reopen negotiations on the substance of the deal. And they won’t make the backstop temporary.