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FRANKFURT (Reuters) - Britain would be "naive" to expect generous trade deals when it quits the European Union, the German minister responsible for its financial centre said on Monday, adding that Frankfurt would grab business from London.
While France has long made no secret about its ambition to take business from London, German politicians have largely avoided such statements and Tarek Al-Wazir's show a desire in Germany to profit from Brexit, potentially complicating Britain's attempt to strike a trade deal with the EU.
Al-Wazir, a minister in the state of Hesse, in Germany's industrial heartland, told Reuters that British politicians were unrealistic in hoping for generous terms for future trade deals.
"It is naive to believe that countries are simply waiting to strike trade deals with Great Britain after Brexit," he said. "Whoever wants to attract companies with tax cuts cannot expect to be rewarded with generous trade deals. It won't happen."
Earlier this year, British Prime Minister Theresa May, when announcing that Britain would quit the European Union's single market, hinted that it could use tax breaks to fight to attract businesses if the EU imposed punitive tariffs.
Al-Wazir said he expected the clearing of trades in euros, a multi-trillion-euro business, to move from London to centres including Frankfurt, which he is responsible for promoting.
"It is hard to imagine that most business in euros will be booked in London after Brexit. Europe needs access if anything goes wrong. From the ECB's point of view, London is offshore after Brexit," he said, referring to the need for the European Central Bank to have oversight of the business.
"You can expect parts of the clearing business to be spread across many continental locations. I'm confident that Frankfurt can attract part of London's euro clearing business."
The collapse of merger talks between Deutsche Boerse and the London Stock Exchange, however, could complicate this, with some observers predicting that the LSE is now more likely to move clearing to its Paris-based business.
Although Britain is not one of the 19 countries in the euro currency bloc, London dominates trading in the currency.
The trading of euro-based securities spans trillions of euros of derivatives deals as well as the 'repo' market providing short-term funding for banks – roughly 2 trillion euros of which experts say is based in London. On top of this, there is foreign exchange trading in the currency itself.
The Frankfurt-based ECB wants oversight of this business for a practical reason: if any disaster were to hit these markets like the 2008 collapse of Lehman Brothers bank in the United States, it would be responsible for dealing with it.
Writing by John O'Donnell; Editing by Alexander Smith