Brexit for finance? Structural interdependence as a source of financial political power within UK-EU withdrawal negotiations

Abstract

For most analysts, Brexit reveals the highly contingent power of finance and the clear limits to its ability to influence crucial policymaking outcomes. By contrast, I contend that UK-EU negotiations demonstrate the unique capacity of finance to secure substantial commercial protections relative to all other business sectors and that the structural sources of the City's political power remain exceptionally robust. Elaborating a notion of 'structural interdependence', the paper demonstrates how policy officials on both sides came to perceive that the future prosperity and stability of their economies relied upon maintaining open trading relations in financial services. This necessitated broad continuity in access to London's deep financial markets for EU firms and preservation of the City's leading role in the UK growth regime. In establishing these claims empirically, I document an extensive range of contingency measures designed throughout December 2018-April 2019 that would function to protect the financial industry from economic disruption in the event of a no-deal Brexit. The outcome illustrates how finance benefits from a form of structural power that does not require instrumental mobilisation, but rather shapes policy decisions on the basis of deeply entrenched and commercially vital cross-border financial entanglements.

Rule maker or rule taker? Brexit, finance and UK regulatory autonomy

“…The preferences and mobilisation of the financial industry since the EU referendum, therefore, fits well with a transnational governance perspective (see also Kalaitzake, 2020). Many domesticoriented financial firms remained relatively muted during the negotiations, not least because they had far less at stake.…”

“…Since the main implications of Brexit with reference to finance concern the disruption of cross-border financial business, we would expect theories of transnational governance to have considerable explanatory power. Indeed, Kalaitzake (2020) pointed out the 'structural interdependence', whereby, in the context of Brexit, 'policy officials on both sides came to perceive that the future prosperity and stability of their economies relied upon maintaining open trading relations in financial services'.…”

European Integration and the New Global Disorder*

“…Brexit has upset this relationship, generating a series of dilemmas (James and Quaglia, 2019; Lavery et al ., 2019). While significant financial linkages with the City will endure, such as in the area of euro‐denominated clearing, these are likely to take place under ad hoc equivalence arrangements that entail a high degree of uncertainty, in particular as regulatory standards diverge between the UK and the EU (Kalaitzake, 2020). The prospect that some financial activities will be relocated to the EU also creates the risk of financial market fragmentation.…”

Exit, control, and politics: The structural power of finance under asset manager capitalism

“…The broader literature on the 1870 1890 1910 1930 1950 1970 1990 2010 Real GDP growth Real return on wealth structural power of business has generally focused on the ability of capital to threaten exit, that is, to hold back investment or to permanently move capital elsewhere (Block, 1977;Culpepper, 2015;Fairfield, 2015;Lindblom, 1977). The literature on the structural power of finance also emphasizes financiers' ability to (threaten to) withdraw credit or portfolio investment from firms, sectors, or entire countries (Strange, 1988), both in the Global South (Dafe, 2019;Naqvi, 2018;Roos, 2019;Winters, 1994) and in the Global North (Bell & Hindmoor, 2015;Culpepper & Reinke, 2014;Kalaitzake, 2020;Woll, 2014).…”