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France plays hardball over the UK's financial passport

French President Francois Hollande may have been at the center of the Sterling free-fall last week, but his government sees no reason to pare back its rhetoric over the U.K's Brexit from the European Union in order to calm markets.

Speaking from the EcoFin meeting of Europe's finance ministers in Luxembourg, French Finance and Economy Minister Michel Sapin rejected suggestions that cooler heads might prevail at the negotiating table.

"I understand why it concerns Brits, but at some point you can't bend the rules. The rules will have to be respected," Sapin told CNBC.

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EMMANUEL DUNAND | AFP | Getty Images

Chief among investors' concerns surrounding a so-called Hard Brexit is that UK-based financial firms will lose so-called passporting rights if the country was pushed out of the Single Market. The EU financial passport allows banks and asset managers to conduct business across the 28 member states without seeking country-by-country regulatory approval.

UK Foreign Secretary Boris Johnson has been among those holding out hope that financial passports will be protected even if Britain leaves the Single Market.

When asked if the French government would support such an outcome, Sapin laughed off the suggestion, "impossible."

That may not come as a surprise since Paris is among the European capitals making a grab for London's banking prowess.

French Prime Minister Manuel Valls declared in the days following the EU referendum vote "We want to build the financial capital of the future."

The government also has a vested interest in towing the party line and talking tough on Brexit with just six months to go before a national election. Hollande is widely expected to suffer a defeat in the spring contest with his popularity rating currently in the mid-teens.

Nevertheless, it may be too early to predict an end to London's title as the financial center of Europe if the regulatory mood in Luxembourg is anything to go by. EU Commissioner for Economic Affairs Pierre Moscovici told CNBC that the 10 member states supporting the delayed Financial Transaction Tax are making 'good progress' and he hopes they will have an agreement by year end. The Eurozone's four largest countries – Germany, France, Spain and Italy – are all taking part. That should lend comfort to the UK's Conservative government, as they try to offset an exodus from the City.

The French finance minister, however, shrugged off suggestions that the tax will send an anti-competitive message in the aftermath of Brexit.

"It's not here to punish, this tax on financial transactions, it's here to make sure that financial movements become as useful as possible, " Sapin told CNBC.


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