June 8, 2018 / 2:23 PM / a year ago

Business needs to prepare for worst-case on Brexit: German finance minister

FRANKFURT (Reuters) - German Finance Minister Olaf Scholz said on Friday that businesses readying for Brexit should prepare for a worst-case scenario even though there was “no guarantee” of a final deal being reached between Britain and European Union.

Germany's Minister of Finance Olaf Scholz arrives at the welcome reception dinner during the G7 Finance Ministers Summit in Whistler, British Columbia, Canada, May 31, 2018. REUTERS/Ben Nelms

A tentative deal to manage Britain’s transition out of the common market had been reached in March, but this still hinges on a final overall agreement being reached with the EU, Scholz warned.

“There is no guarantee that this overall agreement will be reached, though we are working hard on it, as there are still open questions, including the question of a custom border between Ireland and Northern Ireland, that need to be solved,” Scholz told a Goldman Sachs conference in Frankfurt, Germany.

“Companies are well advised to prepare for the worst-case scenario as well,” Scholz said.

His choice come after remarks by Britain’s foreign minister Boris Johnson, reported by Buzzfeed on Thursday, in which he said there could be a Brexit meltdown but that it would be “all right in the end”.

He said Prime Minister Theresa May was beginning to take a harder line but that there would be a need for level-headedness as talks became more difficult in the months ahead.

Scholz backed EU proposals that could require some financial businesses to move out of London if financial stability was put at risk, particularly in the case of euro-denominated clearing.

“Financial stability considerations may even require a relocation of business from the U.K. into the EU 27. This is especially relevant for the clearing of euro derivatives,” Scholz told the conference.

Clearing houses, also known as central counterparties, sit between two sides of a financial trade to ensure the transaction can be completed.

Euro clearing is one of the main battlegrounds between London and Brussels in divorce talks that will shape how Europe’s financial market is divided up when Britain leaves the European Union.

European regulators including the European Central Bank have wanted more control over euro clearing.

“To minimize risk for financial stability it is indispensable that such clearing is subject to strong regulation and supervision and in full conformity with EU standards,” he said.

Reporting by Edward Taylor, editing by Thomas Escritt

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