Britain has already begun the formal process of divesting itself from the EU as Brexit gets underway. Many political commentators have maintained that Britain will be heading into the negotiations from a position on weakness because the EU appears to hold all the cards.

The commentators who believe that Britain will be at the mercy of the EU in the Brexit talks have raised some valid concerns. For one, they have noted that the EU would favor a hard Brexit in order to pass a strong message to other EU nations that it won’t be easy to leave the EU.

Interestingly, Britain’s Prime Minister, Theresa May has made it very clear that she will try to get the best Brexit deal for Britain. She has already noted that no deal is better than a bad deal – she won’t think twice about walking away from the table if the EU is being ‘unreasonable”. This piece seeks to examine how Brexit could turn out to be a loss for the EU.

Europe lacks the financial stability integration that the UK provides

The untold part story of how Brexit can hurt the EU starts from the finance perspective. The EU is a mishmash of economically strong and economically weak countries. The large economic gap between member nations is one of the biggest drivers of national debt problems rocking the EU. Greece, Portugal, Italy, and Cyprus are notable example of economic fault lines in the EU.

More so, EU companies are able to get financing from UK financial institutions because such institutions have access to household savings with which they can do business. The European financial market relies more traditional banking than on the capital market; hence, the EU firms might face a cash crunch triggered by the lack of readily available capital.

The banking union in the EU is still fledging

The EU’s financial position is built around UK’s strong financial sector and there’s no denying the fact that the EU lacks a banking union worthy of its status. Brussels is yet to design strategies that can boost cross-border investment flows, its banking union remains fragmented and its capital-markets union is still somewhat shallow.

Interestingly, the development of the European Stability Mechanism (read bailout fund) and the introduction of the ECB’s quantitative easing program is making some difference. However, the EU needs to find ways to reduce the impact of financial shocks on the economies of member nations and the Brexit event will make it harder for the EU to gets it financial house in order.

EU companies might find it harder to raise equity and debt

London is in no doubt the financial capital of the EU and Brexit will trigger the need to shift that capital elsewhere. However, moving the financial capital from London to another city only sounds easy on paper. However, Stuart Chavez, an analyst at Saxon Trade observes that “EU companies will find it harder to raise equity and obtain debts in the capital market while the process of building and normalizing a new financial capital for the EU plays out.”

In the pre-Brexit world, EU companies can access the capital market in London without wondering about excessive national controls. Now, Brexit will lead to the creation of new financial borders between the UK and other countries in the EU and it will become more stressful and expensive for EU firms to raise money from London.