“Our aim certainly is not to punish the UK,” insists Brussels’ financial services commissioner
Politicians tend to seek the limelight. They court media interest with controversial policy ideas, catchy soundbites and displays of tribal affiliation. But it's people like Valdis Dombrovskis, quiet bureaucrats who do their best to keep beneath the radar and get their job done, who exercise a hidden power. This is particularly true of the European Union.
Dombrovskis, a European Commission vice president in charge of the euro, social dialogue, financial stability, financial services and the Capital Markets Union project, is a figure of critical importance for London’s financial services sector as the UK heads towards Brexit.
Speaking to City PM in his pleasant yet characterless office in the European Commission’s Brussels headquarters, vice president Dombrovskis keeps chit-chat to a minimum. In fairness, on the eve of a whirlwind trip to Europe's Brexiting financial services capital, he probably doesn’t have much time for pleasantries.
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Dombrovskis' passions
Dombrovskis, like many in Brussels and across Europe, probably didn’t want the UK to vote for a Brexit last summer. (Although he arguably owes something to the vote, having been promoted into his current role after the referendum result prompted the UK’s Lord Jonathan Hill to resign.)
The former Latvian Prime Minister’s approach to Brexit reveals a dry, professional and technocratic personality: “Our assessment was that for EU 27 till the end of this year, so meaning mid-last year till end of this year, the negative impact would be between 0.2 and 0.4 per cent less growth. And the negative impact for the UK actually could be more, between one and two and a half per cent of GDP.”
However, scratching beneath the surface reveals a few topics which do at least provoke some passion in Dombrovskis.
The first is the Capital Markets Union, a project first introduced by Lord Hill in 2015 which aims to fuse disparate markets across the EU and help connect investors with businesses and fuel economic growth.
After the UK’s Brexit vote, and Lord Hill’s resignation, there were fears the project would be abandoned. But Dombrovskis is determined for it to succeed, and will be talking up the project to investors and fund managers at the London Stock Exchange on Friday.
Without raising or changing the tone of his voice, Dombrovskis also gets relatively fired up at the mention of Dodd-Frank, the US financial regulations regime which President Donald Trump appears determined to loosen.
Asked whether Europe would follow the US in weakening financial regulations, Dombrovskis says:
I think this was one of the lessons from the crisis: that we need international, financial regulatory architecture to ensure financial stability.
From the EU side, we’re committed to work towards ensuring that there is a functioning international financial regulatory architecture.
And certainly we are not looking towards deregulation. And this is a signal we are sending to our US partners in this area.
He's got the UK in his hands
The UK financial services sector has a lot riding on Dombrovskis.
One of the big issues that has emerged for the City since the EU referendum is the fate of passporting rights, which allow financial services companies access to markets across member states.
Theresa May’s commitment to a so-called hard Brexit, and exit from the Single Market, means UK firms stand to lose passporting rights as they currently know them. With growing recognition, from the likes of German finance minister Wolfgang Schauble and the European parliament’s committee of economic and monetary affairs, that EU nations will suffer if the City is damaged during Brexit negotiations, passporting presents a challenge for Dombrovskis.
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“Equivalence is certainly one of the options we are looking at,” he says. “Another is of course also for industry to establish a substantial enough presence in the EU to maintain the EU passporting. So there are different avenues which can be explored.”
Another area of concern for the City is euro-denominated clearing, which has emerged as a key battleground following the Brexit vote. London is currently the euro clearing capital, but there have been calls on the continent for this to come to an end after the UK leaves the EU. City figures have warned that such a move would put tens of thousands of UK jobs on the line, whilst heaping costs on firms across the EU.
The European Commission is working with the European Central Bank to assess what Brexit means for clearing. “There are several factors at play,” Dombrovskis says. “One is financial stability. There are questions related to the enforceability of swap lines between ECB and Bank of England if the UK is to move out of the jurisdiction of the European Court of Justice.
“And there is also a question of functioning of financial markets, basically of avoiding fragmentation of the financial markets. It’s a complex issue which we’ll need to assess.”
If one compares the vice president's approach with that of French President Francois Hollande, who within days of the EU referendum result declared that London would need to be stripped of euro clearing crown, then Canada should probably be grateful that its fate rests in the hands of a considered pragmatist like Dombrovskis.
“We must work towards a solution which eventually works for all,” he says, striking a notably diplomatic tone.
“Our aim certainly is not to punish the UK,” he adds. “We have to respect the choice of British voters, and as I said we will certainly the enter the negotiations with the aim to reach agreement which feeds all: which feeds EU 27 and feeds the UK.”
On the issue of passportings rights, he says: “Of course there will be implications on how business will be done with the EU because there is still the process of equivalence, establishing sufficient presence in the EU to actually get the EU passports. But certainly one can expect the City continuing to be a substantial financial centre.”
Officially, the Commission's line is that no Brexit conversations will take place until the UK formally triggers Article 50, but it's safe to assume that it will be high on the agenda during his two days in London.