The Grand Duchy’s growing role as a business hub post Brexit
This week, Britain’s EU Withdrawal Bill officially became law with royal assent from the Queen.
As part of the legislation’s attempt to ensure a smooth transition, certain European laws will be incorporated into UK law. The 1872 European Communities Act, which gave EU law power over UK law, will be repealed by the new Withdrawal Act. The Queen’s nod, a legal technicality, represented the culmination of months of argument within Parliament
This motion is yet another step toward March 29, 2019, when Britain officially leaves the EU. Its looming permanence leaves businesses and stakeholders concerned. The automotive industry, for example, was quick to speak out. Heavily dependent on exports, Britain’s auto sector claims that the decision to leave the EU’s single market and customs union severely hinders its profitability.
Lasting financial repercussions of Brexit
Aside from BMW and the rest of the automobile industry, Siemens and Airbus have also issued warnings to the government saying that without a free trade alternative in place, simply leaving the EU market will immediately hurt businesses. The Office for National Statistics published figures that show business investment fell 0.2 percent in Q1 of 2018. Some numbers value the economic loss at £40 billion to date.
Today, the pound is still worth over 10 percent less than it was just before the Brexit vote. As companies hold off on investing and growing on British soil, they look to other European cities to take on the role once held by London.
Member state hubs, such as Dublin and Luxembourg, suddenly carry a new level of appeal for everyone from SMEs to skilled trade workers to the logistics sector.
Looking to Luxembourg
Luxembourg, the world’s second-biggest investment fund center, has long been a leader in the financial industry, serving as headquarters for large market players. Dependent on cross-border workers, the Grand Duchy developed an international culture that appeals to foreigners.
Its small size means that when startups and companies call, the government answers, allowing for quick, responsive development.
With a longstanding financial landscape, the proliferation of cutting-edge startups and a government that wants to support both, Luxembourg has received an influx of business catalyzed by the Brexit.
American International Group Inc., Hiscox Plc, RSA Insurance Group Plc, Blackstone & M&G Investments were quick to relocate their operations to Luxembourg. As the visibility for Britain’s near future remains limited, we may find more and more financial and insurance actors following suit.
The future of EU-UK banking
Recognizing how quickly it has lost asset managers, bankers and insurers to places like Luxembourg and Frankfurt, Britain is keen to set up a tailored “mutual recognition” trade agreement. While this would help Brexiters avoid some of the repercussions within its financial industry, Luxembourg Finance Minister Pierre Gramegna echoes the sentiment that, rather than favoritism, Europe should improve its “equivalence” system and accept foreign banks whose home countries have similar rules as the EU.
Whatever the ultimate solution, it will likely take years to iron out (a “standstill” transition period is already set to extend to 2020). In the meantime, Luxembourg will continue fulfilling its role as an EU-based business alternative to Britain.
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