Clearing will determine if Brexit self-harm goes both ways

Clearing will determine if Brexit self-harm goes both ways

The UK knows well that the political ideology of Brexit can trump both economics and plain old common sense. What is less familiar is to see this phenomenon so clearly across the waters of the Channel.

As Britain battles supply chain problems in everything from petrol to poultry, Europe is facing its own sovereignty versus sanity trade-off — in the rather less consumer-facing world of derivatives clearing, where a Brexit negotiation that largely ignored the City and financial services has given way to an unhappy stalemate. 

A memorandum of understanding agreed in March hasn’t gone anywhere, as tensions over Northern Ireland blocked progress. What was on offer was really only a talking shop. But no one has set up shop and there isn’t much talking.

But in the coming weeks, Europe will need to make a decision about one of few areas where it did grant temporary regulatory equivalence before Brexit, allowing activity to continue much as before: the ability to clear interest rate swaps and other over-the-counter derivatives in London, which is a global hub, through houses such as LCH, owned by London Stock Exchange Group.

The European Commission said, in the now-infamous “strategic autonomy” paper, that it considered the clearing of euro-denominated