Brexit and the political economy of euro-denominated clearing

The decision by the United Kingdom (UK) to withdraw from the European Union (EU) has reignited tensions around the clearing of euro-denominated derivatives. Yet, the EU has resisted concerted pressure from several member states and the European Central Bank (ECB) to force the relocation of euro clearing away from London. Instead, it has opted to strengthen the supervision of EU and non-EU Central Counterparties (CCPs), leaving the derecognition of third-country CCPs as a last resort. How do we explain this? This article adopts a synthesis approach, combining theories with distinct domains of application to provide a more comprehensive explanation. We argue that a state-centric perspective helps us to understand the preferences of key member states, but it cannot fully explain the EU’s position because it ignores the critical role of supranational institutions. In addition, a transnational approach has limited explanatory power because the most concerted opposition came from a small number of dealer banks, not a wide coalition of financial interests. To address these gaps, we argue that incorporating a bureaucratic politics perspective can add significant analytical leverage. This reveals that the EU’s resistance to a location policy reflected the need to reconcile the competing bureaucratic interests of different supranational institutions.