The merger of the London Stock Exchange and Germany’s Deutsche Börse was one of the largest deals of the last year. With a combined value of £24bn, the merged company would have dominated European stock trading. Now it looks as if the deal will join the list of mergers that, like Kraft and Unilever or Pfizer and AstraZeneca, just never happened. On Monday, the LSE said that the European Union had demanded it sell off a major Italian unit as a condition of approving the merger. The company decided that was too high a price to pay. It looks as if the deal will fall apart.
For the City, that might turn out to be a blessing. Unless there are extraordinary concessions from Europe, London’s financial services industry will have to reinvent itself when Britain leaves the EU. It will have to serve a global rather than a continental market, which will largely be closed to it. The City’s future is likely to be in trading equities and debt for emerging markets, the US and Asia, and as an offshore base for Europe. An independent stock exchange is more likely to be able to do that.
But why was the EU laying down conditions for a British company anyway? It is, of course, perfectly entitled to set terms for the German half of the business, and even for the Italian unit. But Britain should take control of competition rules for companies based in Britain after we have triggered Article 50 and started the process of leaving the EU at the end of this month. One thing we should have learned from the last few years is that the EU does not actually see competition law as a way of promoting competition. It uses it as an arm of industrial policy, and often as a back-door form of protectionism.
Steel importers, for example, have been accused of “dumping” to protect high-cost French and Spanish steel works. The EU has a terrible record of prising open markets, which is one reason its growth is so slow. If we allow the EU to carry on regulating “competition”, it will not be done in the interests of consumers – but of protecting European companies.
The UK needs to be free to plot its post-Brexit course. That is likely to be in the direction of becoming a far more free-trading, open, international economy than any country in Europe, and one that is far less reliant on the declining European market. Getting there is going to mean policies that put British companies first, and occasionally protecting strategic industries. That is not likely to be compatible with EU competition law. So here’s what should happen. When we trigger Article 50, the UK should say at the same time that it plans to take back control of competition law immediately, along with areas such as working hours, energy, financial regulation and trade agreements.
After all, it looks as if there is very little to negotiate with the EU about, apart from the size of our exit bill. We have already said we are coming out of the single market and the customs union. Once we are out, we will have the same relationship with the EU as Canada, or Australia, or South Korea, so there is very little else to discuss apart from the date of our departure.
The UK already has plenty of challenges preparing for its post-Brexit future. There is no point in allowing the EU to continue to interfere in the meantime. As it happens, we can be relaxed about Brussels scuppering the LSE/Deutsche Börse merger – it was never in our interest. But that doesn’t mean it’s okay to have the EU controlling our economy until the day we leave.