Joint finance means joint regulation, joint regulation means Brussels.
This is exactly what the proposed £21bn merger between the London Stock Exchange and the Deutsche Börse could result in.The deal is the latest in a series of project proposals to establish a Capital Markets Union (CMU) within the EU. The CMU will serve to
“Mobilise capital and channel it to all companies … and infrastructure projects that need it to expand and create jobs” tweet
Proponents of the merger have cited the potential for significant cost synergies, however, both it, and the CMU more generally could seriously harm UK interests. Rather than protecting Britain’s sovereignty, the CMU will serve to compound the pre-existing ‘tyranny of contiguity’ that defines the EU. Indeed, a European Commission report outlines how the CMU “will complement the regulatory financial reforms of recent years and the Banking Union”.
This statement of intent by the European Commission clearly illustrates that a Capital Markets Union would undermine our opt out of the Banking Union. This wholly contradicts the Conservative’s 2015 Manifesto Pledge which states, “We want to see powers flowing away from Brussels, not to it”.
Given this trend towards further economic harmonisation in Europe, Cameron’s non-binding ‘settlement’ will be powerless to “safeguard British interests in the Single Market”. Indeed, with 19 Euro-adopters against the nine Euro-dissenters, the caucus of majority Eurozone countries could, and probably would, ’steamroll’ British interests to further the cause of EU integration.
Another serious concern is the size of the merger. ‘Too big to fail’ was seen as a key cause of the global recession, yet the deal would create the world’s largest exchange in terms of income ($4.7 billion). Over 3,000 companies would be listed on the amalgam’s market, with €3.2 trillion in equities being exchanged between parties. So much for “too big to fail, too big to exist”.
With an international focus on macroeconomic stability, this sort of consolidation must be treated with caution.
The very essence of a stock exchange highlights another issue. Exchanges, as Jean-Pierre Mustier identified, are there to “allow domestic companies to have access to capital and liquidity”. However, a globally integrated exchange shifts focus away from ‘domestic’ interests’, thus undermining the very raison d’être of such an institution.
Indeed what an institution it is. With over 215 years of history, the London Stock Exchange has been at the forefront of the City of London’s success as a global leader in financial services. Nostalgia can be dangerous, but given the growing homogenisation of nations within the EU, culture and history become increasingly important.
Moreover, whilst the deal has been firmly described as a “merger of equals”, with a German Chief Executive, and the Deutsche Börse taking a majority shareholding (45.6pc vs 54.4pc), this doesn’t ring true.
Indeed, one must also be wary of Frankfurt’s historic envy towards the successes of the City of London. As a consequence, there is a very real fear that the Germans may seek to export the City’s global stature, by way of moving jobs to Frankfurt.
Whilst one must treat the deal with caution, it is interesting to note the determination by both parties to complete the merger even if Britain were to leave the EU. This surely demonstrates a rather bullish assessment of the UK’s post-Brexit future by the Germans. Regardless, a merger deal has been inevitable for the LSE for some time.
However, unlike the Americans, the Germans, rather worryingly, are not merely motivated by financial gain. Indeed, they see the deal as a way of countering the threat of the USA taking control of European financial infrastructure. As highlighted by Sir Bill Cash MP,
“The Germans want to run not only the eurozone but also the EU as a whole. There is no limit to their desire to take over institutions like the stock exchange.” tweet
The London Stock Exchange cannot become a pawn in some geopolitical game.