The EconomistFebruary 6th 2021 Leaders 11W
hen talksbetween Britain and the European Union about
trade went to the wire in December, they nearly collapsed
over fishing, which contributes less than 0.1% to British gdp. Fi-
nancial services, which contribute 7%, were left in the cold. As
far as banks, insurance firms and the like are concerned, there
might just as well have been no deal at all. American firms now
trade with the euon better terms than British ones do.
Britain’s financial-services industry is already counting the
cost of the government’s negligence. Between the referendum in
June 2016 and the end of 2020, around 7,500 jobs and over £1.2trn
($1.6trn) of assets moved from Britain to various European capi-
tals. But as with much about Brexit, the terms of
Britain’s departure from this market have still to
be settled (see Britain section). The two sides
continue to negotiate over whether Britain
should enjoy “equivalence”—a temporary right
to trade on equal terms with eucompanies.
Free trade in financial services would benefit
both sides. If the euis prepared to offer it on the
basis that both sets of regulators are aiming at
similar outcomes—such as orderly and stable markets—then
Britain should accept it. However, as with the overall trade deal,
Europe expects to extract a price for market access. If the price is
that the euwrites the rules, Britain should walk away.
Politics is one of the reasons. When things go wrong in fi-
nance the government often has to step in. If the voters’ money is
used to prop up a system, their representatives will rightly ex-
pect to be in charge. Andrew Bailey, who as governor of the Bank
of England is responsible for the system’s stability, told Parlia-
ment earlier this year that being a “rule-taker” would be too high
a price for Britain to pay.The euis a valuable market for Britain’s financial-services in-
dustry, making up around a third of its exports. Being bound by
the eu’s existing rules would be no great burden, for Britain had a
big role in designing them. But those rules will probably tighten.
Europe’s politicians tend to be more interventionist and protec-
tionist than Britain’s, and they suspect Britain’s light-touch reg-
ulation of having contributed to the financial crisis and the euro-
zone meltdown. They could also write rules designed to boost
their own financial centres by undermining London.
If Britain accepts eufinancial regulation, it will be a large dog
being wagged by a small European tail in many areas of business.
Where Britain is dominant, such as in deriva-
tives and foreign exchange, and in new areas
such as carbon credits where it has a good
chance of taking a slice of the business, it should
be seeking to make the rules alongside big mar-
kets such as America and Japan, and forward-
looking ones such as Australia and Switzerland.
Although the price of equivalence is likely to
be high, the prize is not especially valuable. The
eu’s share of the global market is shrinking; and equivalence can
be withdrawn at 30 days’ notice, as Switzerland found in 2014
when it fell out with the euand stocks listed there were suddenly
banned from euexchanges. The euhas little compunction in us-
ing rules as political cudgels, as its threat last month to stop vac-
cine trade between Ireland and Northern Ireland demonstrated.
Britain would have done better to stay in Europe’s financial-
services market, and to retain its clout over the rules that govern
it. That’s no longer an option. Being kicked out of trading Euro-
pean products will hurt. But rather than accept rules set by other
governments, Britain should cut its losses and diverge. 7The price is wrong
If the euinsists that Britain accept its financial rules in return for market access, Britain should say noBrexit and the Citymacy. A semblance of democracy may help keep their subjects
quiescent and certainly makes international summits less awk-
ward. Their dream is to create some scope for genuine political
competition, the better to appease the masses and their foreign
friends, while retaining control over all important decisions.
The generals who run Pakistan and Thailand have attempted to
devise such systems, as have the autocrats ruling Cambodia,
Russia and Venezuela, among others. But few have been as ex-
plicit as Myanmar’s top brass about seeking to enshrine their au-
thority in perpetuity in what otherwise resembles a democracy.
Such arrangements, however, are inherently unstable. Auto-
crats dislike being shown up, no matter how negligible the con-
sequences. The regime of Vladimir Putin, Russia’s president,
this week jailed Alexei Navalny, a prominent critic, after he had
the cheek to survive an assassination attempt, and to use his new
lease on life to publicise a billion-dollar secret palace he says be-
longs to Mr Putin (see Europe section). In Myanmar Ms Suu Kyi
was always careful to speak politely about the army, but her party
repeatedly thumped the one backed by the generals, winning 12
times as many seats in the election in November. The snowflake
generals found such humiliation hard to bear.
Unarmed politicians in Potemkin democracies naturally lookfor ways around the obstacles erected by the men with guns.
Myanmar’s generals thought they had sidelined Ms Suu Kyi by
barring her from the presidency, but she invented a new posi-
tion, “state counsellor”, which she declared was “above the presi-
dent”. Political parties in Thailand that are hostile to the top
brass keep winning elections and trying to form governments,
forcing the authorities to ban more and more of them.
That hints at the most unpredictable force disguised despots
contend with: their citizens. They tend to vote for the wrong peo-
ple (witness how often the Pakistani army has had to see off tire-
some prime ministers). The people can also take to the streets if
the system is a hollow pretence. In Belarus, after phoney elec-
tions, thousands have been braving brutal repression. So too in
Russia where, as Mr Navalny said this week, “Lawlessness and ty-
ranny pose as state prosecutors and dress in judges’ robes.”
Protests are also possible in Myanmar—as is their violent
suppression. The army, after all, has quelled peaceful demon-
strations by force plenty of times over the years. But the pariah
status that comes with naked repression is precisely what the
army was hoping to escape when it concocted the constitution it
has just violated. In that sense, the coup, although crushing to
Myanmar’s democrats, is a defeat for the generals, too. 72