By Gernot Heller and Huw Jones
BERLIN/LONDON (Reuters) - Germany, just like Britain, will have its own demands when the UK negotiates its new relations with the European Union, the Berlin finance ministry said on Friday, seeking to play down hopes of an easy deal to keep London's financial hub intact.
A ministry spokesman clarified comments made on Thursday by Finance Minister Wolfgang Schaeuble, who had said it was "very reasonable" of his British counterpart to want access to the EU single market for financial institutions in London.
"He used the word 'reasonable'," the spokesman said on Friday in response to a question from Reuters.
"But the sentence then goes on. He said the British would make demands that are reasonable from their point of view, and from our point of view it is just as reasonable that we have demands," the spokesman told a government news conference.
"We will see what the result is of this negotiating process. An application has not even been put forward yet and so everything we say about that is speculation," he added.
Asked if this meant Schaeuble did not share the view of Britain's new finance minister, Philip Hammond, the spokesman replied: "He said he understands that from the viewpoint of the British such demands are made, and that the British will hopefully understand that we have other demands."
Hammond said on Thursday Britain must ensure access to the EU's single market for its financial services industry. [nU8N19702M]
Some in Britain believe that such a deal is possible without allowing continued freedom for EU citizens to work in Britain. The German finance ministry's comments suggest, as EU leaders have already said, that will not be possible.
Mark Boleat, policy chief for the City of London financial district, nonetheless said the comments from Schaeuble and Hammond were encouraging regarding access to the single market.
WHAT IS ACCESS?
A banking industry official noted that Schaeuble and Hammond spoke of access to the single market rather than membership of it - the latter usually only possible on condition of accepting the unfettered freedom of movement, a step too far for many backers of Brexit.
Currently banks in Britain comply with EU rules which give them a "passport" to offer their services across the bloc from one base, but the chances of preserving this in full are slim in practice, analysts and officials say.
"We believe that a highly likely outcome, save for some sort of regulatory loophole, is that the UK may lose its right to passport financial services into Europe," Boston Consulting said in a study on Friday.
"In the absence of certainty, banks will likely behave as if there is no passport to be counted on."
Lawyers and bankers are assessing whether a new EU securities trading and investment services law - MiFID II - that comes into force in January 2018 might give passport-like rights.
It allows a "third country" from outside the EU to serve customers in the bloc if that country's financial rules are "equivalent" in strictness and scope as those in the EU.
"All options outside the EU are pretty awful, but the third country status is probably the most realistic one," said Saima Hanif, a financial services barrister at 39 Essex Chambers in London.
"But the MiFID II equivalence regime is untested and hence it is unclear how it will play out in practice," Hanif said.
While banks in theory could use MiFID, their most important customers, the funds who handle trillions of euros in assets, have no equivalence regime in the EU mutual funds law that currently gives them a passport.
"Some asset managers in London are already looking at other centers in Europe, and banks are under pressure to stick close to clients," a banking industry official said.
While Britain would have no technical problem being "equivalent" to EU rules in the short-term, the bloc amends its rules over time, possibly in ways Britain won't like and thus making it unpalatable to maintain equivalence, Hanif said.
Although many in Britain are hoping the country’s large European neighboring countries will keep London’s access open to the wider European market, many bankers and politicians in France are instead turning their attention to taking business from London.
Financial executives in Paris who spoke to Reuters said that while they did not expect a ‘big bang’ that would see London lose its influence overnight, they were planning for a gradual migration of business to centers such as Paris.
Britain's new prime minister, Theresa May, has said she will not trigger the negotiations to leave the 28-member bloc before the end of the year, to allow time for the country to work out what it wants from its new relationship with Europe and how it will go about getting it.
(Reporting by Gernot Heller and Caroline Copley in Berlin, Huw Jones in London and John O'Donnell in Frankfurt,; Writing by Paul Carrel and Huw Jones; Editing by Toby Chopra)