By Huw Jones
LONDON (Reuters) - A senior German government official said on Friday he was "deeply concerned" about the lack of progress in trade talks between the European Union and Britain, given the heavy reliance of German companies on funding from London's financial hub.
London is Europe's biggest financial centre, but faces being largely cut off from the bloc when Britain's post-Brexit transition arrangements expire on Dec. 31.
Britain and the EU have entered an intensive phase in talks on a free trade deal, though EU access for financial firms in Britain is being dealt with separately by Brussels.
"German corporates, for all that I can tell, rely massively on wholesale financing offered from the City of London, so in that sense we will have to maintain pragmatism, no matter what happens," Deputy Finance Minister Joerg Kukies told an online event held by Afore Consulting.
"But at the moment we are deeply concerned by the lack of progress in the negotiations," he said.
Kukies said no matter what comes up "there is so much depth and intensity of relationships between European countries and the UK that this will not degenerate into animosity, I am absolutely convinced about that."
The EU is accelerating work on a capital markets union (CMU) to cut reliance on London and help fund recovery from COVID-19, a five-year old project that has made patchy progress.
Germany holds the EU presidency and Kukies said the bloc's leaders would agree in December on a "very clear path" to implement the new CMU measures proposed last month.
Among them, incentivising long-term investments by amending the bloc's capital rules for insurers is likely to be prioritised, he said.
"One of our lessons learned from the Wirecard scandal is that we do want to strengthen particularly market supervisory powers of European institutions," Kukies said, referring to the collapse of the German payments firm.
Critics says stronger EU supervision is needed to make CMU work.
"We want to look at best practices in the U.S. and other regions of the world to see how markets supervision at the central level can help avoid some of the problems that we had."