The European Commission on Tuesday revealed what it plans to do about London’s lucrative euro clearing market — the envy of financial centres on the continent.

It is a critical part of London’s financial services sector and the volume of business can exceed a notional $900bn a day. It centres on the processing of euro-denominated derivatives contracts by clearing houses such as the London Stock Exchange’s LCH.

Brussels’ proposal is that EU regulators should be given powers to vet overseas clearing houses. Those deemed to pose a “systemic risk” to Europe’s financial stability will face a range of requirements if they want to maintain smooth access to the EU market.

There’s nothing wrong with that set of requirements at all. Any central bank is going to want to have at least some oversight of people clearing in the currency issued by that central bank. But that isn’t, of course, really what is being said. The important part of that description is ” the envy of financial centres on the continent,” that’s what this is about.

The European Union plans to give itself powers to move euro clearing business away from London’s financial sector to the EU after Brexit and adopt a model closer to that operated by the United States, the bloc’s executive said on Tuesday.

The problem there is that the United States allows, even encourages, clearing in USD outside the US. There is a flourishing dollar clearance market in London, another in Hong Kong, just as two examples.

Miles Celic said any attempt by the European Commission to strip the Square Mile of euro-clearing would come at a price for the European Union.

He said: “Absolutely nobody has come to us saying that this is a good idea, this would be purely political.

“It looks like a punishment to the UK, and as with any punishment it comes with a price to pay for the punisher. The people who end up paying the price on the EU side are customers and clients.

Firstly there’s the obvious point about liquidity. Markets like being where there’s lots of liquidity, that’s what makes trading spreads and thus costs very low. There simply is no other financial market in Europe anywhere near the size of London’s. There’s not even anywhere large enough to hold one–a standard comparison is that there are more people working in London’s City than there are in the entire city of Frankfurt. Thus any move will mean that some part of the market will go here, some there, fragmenting that liquidity and thus making the entire system more expensive for everyone.

The only reason anyone would do this is that they think they could get some fraction of that market to their profit. Or, alternatively, just rage at the thought of Perfidious Albion making money out of the euro. Yes, that does sound odd, doesn’t it, but that is what is driving at least some of this.

And as I’ve pointed out before this would strike against the EU’s desire that the euro be an international reserve currency, up there with the US dollar:

The point being that the European Union very definitely wants the euro to be, to remain in fact, an international reserve currency. And for that to be possible there must be clearing centres in locations around the world, so that it is possible to have instant clearing of a transaction. Thus there’s U.S. dollar clearing in New York, sure there is, as there is also in Hong Kong and in London. Similarly there’s a limited amount of euro clearing in London, Hong Kong and New York. This is just one of those things that an international reserve currency needs to have.

So, to be a reserve currency there will have to be clearing outside the EU to cover the time zones (no, people would not think that clearing through New Caledonia, actually EU territory, nor French Guyana, to meet the time zones, would be acceptable). And if that’s going to be true then there’s no way that it can be allowable to ban London from euro clearing and also allow other non-EU locations to do it.

The choice is, either London can continue to do euroclearing or the euro cannot be an international reserve currency.

This is only an opinion of course, and I am by no means unbiased when it comes to the European Union, but this is, to me, all more driven by spite and jealousy over London’s success at euroclearing than any rational economic motivations.