The City of London must remain the top global financial centre after Brexit to avoid its financial services drifting to other parts of the world, Luxembourg Finance Minister Pierre Gramegna said on Monday.

Financial centres such as Luxembourg, Paris and Frankfurt are battling each other to attract banks, insurers and asset managers in Britain who need an EU base after the UK departs the bloc in 2019.

Companies from across the EU use London for currency trading, derivatives and managing investment funds. Some EU policymakers want parts of these activities shifted to the continent after Brexit to avoid relying on what will then be a foreign financial centre.

“It’s key for Europe … that the Number 1 financial centre in the world remains in Europe,” Gramegna told students at the London School of Economics.

There was a need to harness the City of London to Europe to ensure that London continued to perform well, Gramegna said.

Punishing London to get a “chunk” of the pie was a very short-term view, and a “no deal” Brexit would not benefit the EU, but send UK financial services to countries outside Europe, Gramegna said.

Britain would then, in a sense, drift away into the Atlantic, he added.

“I find that a balanced final agreement with the UK, specifically for financial services, is in the interests of Europe itself,” Gramegna said.

Britain and the EU have held several meetings to agree a divorce settlement, with too little progress to begin talks on future trading relations.

Gramegna declined to put a figure on Britain’s divorce bill, a key stumbling block.

“What is the value of access to the EU single market? Can you put a figure on that? I cannot. Money is really not what’s the most important,” he said.

As regards Britain’s future trading relations with the EU, he said Switzerland has shown how it could work when it comes to the free movement of people, which many Britons want to curb.

He urged British and EU politicians to “dedramatise” the divorce talks, avoid megaphone diplomacy, and focus on the factual.

“We must be neither complacent, nor try to punish the UK,” he said. Having no trading deal would be bad for both sides.

A transition period between Brexit and new trading terms was needed to reassure business, he said.

“The pressure on companies is much higher than what governments anticipated,” he said.

Financial technology firms in London, for example, have already met with Luxembourg, saying they need access to EU customers after Brexit.

“This is much more of an urgent matter than people think,” Gramegna said.