Brexit news latest: EU must do more to avert £29 trillion financial crisis, warns Mark Carney

Bank of England Governor Mark Carney delivers the banks financial stability report at the Bank of England in London
EPA
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Bank of England governor Mark Carney today called on EU leaders to act to avoid a multi-trillion-pound financial crisis over Brexit.

He stepped up the Bank of England’s warnings about threats to £29 trillion in cross-border contracts between the UK and Europe.

When Britain quits the EU next March, markets could be hit by chaos if European banks refuse to recognise so-called derivative contracts underpinning the financial system. The UK has already announced plans to recognise the contracts but the EU is dragging its feet.

“Progress has been made, but material risks remain,” the Bank said in its latest Financial Stability Report. “Action is needed by both UK and EU authorities” on ensuring the continuity of existing contracts, it warned.

The contract issue also affects up to 10 million UK insurance policy holders who could be unable to pay claims and receive payouts from European insurers. Around 38 million European policy holders could also be affected.

Mr Carney said: “The EU has not yet indicated its solution to these fundamental issues which would be expected to have more material impacts on the costs and availability of finance on the Continent in the unlikely event of a disorderly Brexit.”

His remarks came as EU leaders today warned the Government to get “real” on Brexit as they demanded far quicker progress on key trade talks.

However, on the eve of an EU summit in Brussels, they also opened the door to Theresa May being able to clinch a pro-business trade deal if she is prepared to ease back on earlier demands.

With a growing number of businesses in the UK warning of job losses if there is a “hard Brexit”, the Government is coming under pressure to try to maintain close economic ties to the EU.

The Cabinet is deeply divided over the future trade relationship. Mrs May will take Cabinet ministers away for a crunch meeting at the Prime Minister’s country retreat Chequers — expected to be next week — in a bid to thrash out an agreed position.

EU diplomats will agree to “reconsider” their basic free trade offer of last March if Britain reverses its bid to leave the single market and customs union.

However, the leaders are growing exasperated. Bulgaria holds the presidency of the EU Council, and its foreign affairs minister Ekaterina Zaharieva said: “We need to find solutions to all remaining issues in a timely manner and in full respect of commitments taken so far.

“Regarding the framework for the future relationship, we need realistic and workable proposals from the UK as regards its position. The work on preparedness at all levels and for all outcomes must be stepped up.”

EU officials will use the summit, tomorrow and on Friday, to send a “clear and sharp” message. They are threatening to ditch the March transition deal if the UK does not form a permanent “backstop” solution for an open border between Ireland and Northern Ireland.

A Government source said: “We have put forward workable proposals to the EU on a range of areas from the backstop to security, and the White Paper, which will be published after June Council, will continue to drive this process forward. We can make progress if both the EU and UK engage constructively.”

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