Morning all, following my thread on Friday and with the Brexit negotiations continuing in London today, a follow-on.
Thank you all for your likes, retweets and messages of support. Judging from some of the responses and private messages it appears that I touched a nerve... 1/

There are two elements to my argument:
1/ what the legislation allows for; and
2/ how UK government should use the leverage it creates 2/

The substance of the SI is clear. Without Equivalence and access on terms acceptable to the UK, @hmtreasury through @bankofengland will require EU27 entities to fully capitalise in the UK. And EU27 sovereign bonds will no longer carry zero risk weight for capital purposes. 3/

The SI creates enormous optionality in its implementation and the potential to increase costs for EU firms - and therefore - significant leverage in the negotiations.

UK should aggressively haircut certain EU27 bonds for capital and collateral purposes. 4/

This is necessary to properly calibrate the risk profile of certain issuers (ITA, FR, GR), creating additional cost for EU firms. But by varying the haircut (say 2% for GER bunds and 50% for FR OATs) it also creates internal dislocation within the Eurozone (EZ). 5/

Some who commented on my prior piece said EU27 firms would just move out of London. That could happen in the longer term but is absolutely unachievable in 6 months. 6/

It would be impossible for all EU27 institutions and clients to move large derivatives positions and risk out of London and into the EU. The capability, capacity and necessary services simply do not exist in EU financial centres. 7/

Furthermore the EU likes to think fortress Europe is impermeable to global forces but if the UK determined French bonds are worth 50c in the Euro, many international investors will start to head for the EUROEXIT. 8/

Why do I seek the deconstruction of the Euro? Because it was sold as a lie, in that it would promote growth and economic convergence. The opposite has happened. Because that failed, europhiles now present the Euro as principally political. The Euro needs to go. 9/

Some might regard this as something of a nuclear option. But many who say this are the same folk who applaud the EU when it adopts an aggressive stance in denying UK access to the SM. 10/

If it’s ok for the EU to disrupt UK supply chains, create customs delays at Calais, insert a new border inside the UK and deny EU access to the catch of UK fishers, why should the UK also not act to maintain the ‘integrity’ of our markets and flex our own economic muscle? 11/

The simple truth is that the UK has the capacity to seriously damage the EU financially. The impact on banks, insurance companies, pension funds and investors would be seismic, deepen the recession in the EU and potentially shred the Eurozone. 12/

If Equivalence and full access is denied and this scenario plays out, it will be entirely the EU’s fault. UK is fully equivalent with EU regulations. In fact, the UK is ‘super equivalent’ because it ‘gold plates’ its financial services regulations. 13/

This is why @DavidGHFrost rightly won’t accept the EU level playing field. Because in many areas the EU cannot match UK standards. 14/

This is all about politics. Both sides have been skirmishing in a trade war since Cameron commenced the renegotiations in 2015. After 5 years. It’s time the UK brought up the big bazooka. 15/

For the EU the ‘Project’ must be defended by any means. The UK must be punished even if it means unnecessarily harming their own citizens. What’s at stake for us is a sovereign and independent UK. The 17.4m demand that every available tactic is used to achieve that end. END