London’s financial services center would lose access to the wider European Union should Britain quit the bloc, the EU’s justice chief said on Monday, warning that such a move would reduce its status to that of an offshore center.
Viviane Reding’s blunt comments come amid a heated debate in Britain over its future in the 28-country European Union and will reinforce fears in the City of London that a departure from the EU will hurt its position as a global financial capital.
“The City would most definitely lose its unhindered access to the (EU’s) single market in the case of an exit,” Reding, the EU’s Justice Commissioner, told an audience at Cambridge University.
“EU member states would obviously have no interest in supporting what would then be an offshore financial center competing with their own financial firms,” she said.
Reding cautioned that Britain, were it to leave, would find itself in a similar situation to that of Norway, which applies the rules of the neighboring European Union although it is not a member.
“It’s difficult to see why the other member states would grant the UK unfettered access to their markets without requiring it to apply the EU’s rules,” she said in the text of her speech, citing research that found British households would be £3,000 ($5,000) worse off annually outside the EU.
Prime Minister David Cameron has promised to renegotiate the terms of Britain’s EU membership and hold an “in-out” referendum if re-elected in 2015, raising fears the world’s sixth-largest economy could quit the club it joined in 1973.
Many in the City of London, which accounts for roughly one-tenth of the British economy and is rivalled globally only by New York, have been growing increasingly uncomfortable as this debate has unfolded.
While opponents of European integration say it has been imposed by out-of-touch bureaucrats, a growing number of banks, including Goldman Sachs and JPMorgan, have warned about the risks of a possible British exit, or ‘Brexit’, as it has come to be known.
London dominates the $5-trillion-a-day foreign exchange market, trading twice as many dollars as the United States and more than twice as many euros as the entire euro zone.
Financial services contributed £65 billion [$108.5 billion] in tax in the last financial year to March 2013, or 12 percent of total government receipts.
“If the UK were to leave the EU, however, it would no longer be able to influence EU regulation,” said Reding. “It would have to live with the rules decided on by the EU countries.”
A possible referendum on EU membership is not the only factor causing uncertainty about Britain’s future.
Scotland holds a referendum on independence in September and European Commission President Jose Manuel Barroso said on Sunday it would be “extremely difficult, if not impossible”, for an independent Scotland to win approval from EU governments to become a member of the bloc.