For Member of the European Parliament Jakob von Weizsäcker the immediate impact of Brexit is obviously bad. But there could be some positive effects for the EU down the road however. For Jakob von Weizsäcker a joint Franco-German strategy would be the best approach to build a better capital market for the EU and the Euro area post Brexit.
Jakob von Weizsäcker will give his detailed view on the consequences of Brexit and Trump on EU financial sector regulation at Handelsblatt European Private Equity Summit 2017 in September in Frankfurt.
Interview with Jakob von Weizsäcker (European Parliament)
What do you think, Mr von Weizsäcker, are the consequences of Brexit and Trump on the EU financial sector regulation?
Jakob von Weizsäcker: The Brexit negotiations haven’t really started in earnest, and Trump’s US presidency isn’t over. In addition, while some mismatch between what people claim or tweet and reality is unfortunately rather common practice both in politics and business, the discrepancy between assertion and reality would appear to be particularly pronounced both for Brexit and Trump which makes predictions somewhat more difficult. However, Trump clearly wants to “do a big number” on the watering down of the Dodd-Frank act. Such an unlearning of the lessons of the past financial crisis on the other side of the Atlantic would, other things being equal, increase the political pressures in the EU to do likewise, such steps being politically justified as a levelling of the playing field. But other things are not equal: with Brexit, the competition for business between London and other European financial centers is set to intensify, therefore increasing the deregulatory pressures even further, especially on banking regulation.
Is Brexit an obstacle or a chance for Private Equity and the financial market in Europe?
Jakob von Weizsäcker: The immediate impact is obviously bad: Brexit will damage the single market, including for financial services, which is bad for Britain and bad for Europe. However, there could be some positive effects for the EU down the road. For example, the UK has traditionally opposed all progress towards EU central supervision in the financial sector. With the UK leaving the EU, it should therefore be easier to build a truly integrated capital market which could lead to important welfare gains.
Since the Brexit referendum everybody‘s talking about Frankfurt becoming the new London of the banking sector. What do you think?
Jakob von Weizsäcker: While I am in favour of Frankfurt seizing the opportunities offered by Brexit, I believe this would best be achieved by means of a joint Franco-German strategy. Such a joint approach would make it more difficult for the UK to outmanoeuvre the EU on the important financial services file and would immediately focus both government’s minds after the German election on how to build a better capital market for the EU and the Euro area post Brexit.
Why is the Private Equity industry important for Europe and the financial sector?
Jakob von Weizsäcker: Smart money from private equity funds has an important role to play in the EU where otherwise there would be market failures. For example, private equity can help to fund the rapid growth of companies not yet enjoying full market access. It can help to overcome information asymmetries, for example in order to price distressed assets better. And it can improve the market for corporate control which fully diversified investment portfolios do not properly assure. However, this does not mean that private equity is immune to market or moral failures some of which still need to be addressed.