German banker in Brexit banking warning

London's status as a banking hub is in danger if Britain leaves the European Economic Area, the head of Germany's central bank has said.

Bundesbank President Jens Weidmann said British banks could lose so-called passporting rights that allow them to operate across the European Union if Britain leaves the EU without remaining part of the trade zone that includes the EU's 28 members plus Norway, Iceland and Liechtenstein.

"Passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area," Weidmann said an interview with European newspapers, including Britain's Guardian and Germany's Süddeutsche Zeizung.

He said that signs the British economy had stabilized after the vote could be deceptive - "Britain hasn't even applied to leave yet."

Instead, Brexit would reduce ties between Britain and Germany "to that of a third country. It will suppress economic growth in Britain." But he said it was unlikely many companies would flee London for the likes of Frankfurt.

Broader malaise

At the same time, he warned the EU to take the Brexit seriously as a sign of broader frustration, and not to make reflexive moves to increase integration among the remaining members of the bloc.

"For many of its citizens, Europe has indeed lost its shine and become a projection screen for the downsides of globalization and migration. Likewise, the usual instincts of the EU institutions to answer crises with more Brussels, more integration, no longer resonates with the public.

"Integration cannot be an end in itself, it has to make sense."

Conflict of interest

Weidmann repeated his warning that European Central Bank's current policies of ultra-low interest rates and quantitative easing were unsustainable. The ECB's headline main refinancing rate has stood at zero since the beginning of the year.

"Under no circumstances can interest rates remain so low for longer than is absolutely necessary with regard to price stability. The risks of ultra-loose monetary policy become larger the longer the phase of low interest rates lasts," he said.

Some governments including Italy and Germany have profited by refinancing their debts at negative rates, Weidmann noted, which he said shows "low interest rates are further sapping budgetary discipline."

sgb/ (Reuters,AFP,Guardian, SZ)