As Brexit inches closer by the day, the UK has yet to finalize the terms of its divorce from the EU. British politicians are now scurrying to mitigate the impending crisis. Meanwhile, a civil war has erupted among the Tories, pitting hardliners such as Boris Johnson and Jacob Rees-Mogg against those who advocate for a softer landing. The battle has morphed into a grand chess play of politics, mired by uncertainty and distrust on both sides of the aisle.
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An alternative solution proposed by some lawmakers is to mimic the Norwegian model. Among them is MP Nick Boles, who recently called on Theresa May to halt the transition talks in favor of membership in the EEA.
Financial sector braces for impact
One sector of the British economy stands out as being particularly vulnerable. London has long carried the lantern as Europe’s capital of finance. In 2016 alone, it employed nearly 360 000 workers, spread out over a plethora of sub-sectors.
A hard break with the EU could spell disaster for the industry, with access being cut off to the continental market. As a consequence, hundreds of thousands of jobs could end up being exported to cities such as Frankfurt and Zurich. Now insiders are asking themselves whether the Norwegian model is the best course of action.
Roadblocks ahead
The EEA’s core provision grants its members free entry to Europe’s single trade market. That includes the export of both goods and intangible services to the continent. Inversely, European firms are granted access to Norway’s domestic market, with some areas of the economy being exempt.
Cross border economic activity has in turn led to some judicial quandaries, such as questions about national versus supranational authority. Ironically, the financial sector serves as a prime example of this conflict.
One core issue relates to the so called CRR and CRD IV directives. It dictates the capital reserve requirements of EU banks, as a means to prevent insolvency. Norwegian banks’ ability to compete is partly impaired due to more stringent capital requirements at home. It allows foreign banks to reinvest a larger portion of their profits, while serving as a financial straitjacket on domestic firms.
