European financial centres will survive debt crisis
The Summit on the Global Agenda is the world’s largest brainstorming meeting attened by thought leaders of the World Economic Forum’s Network of Global Agenda Councils.
The Councils, comprised of experts from academia, business, civil society and government, address over 80 pressing issues facing the world today. The Summit on the Global Agenda 2012 is held in Dubai from November 12 to 14 in Dubai.
Ahead of the summit, Avinash Persaud, Chairman of Intelligence Capital Limited and Fellow, London Business School, spoke to Gulf News on the wideranging impact of the financial crisis in Europe. Avinash Persaud: The health of financial centres can be detached from their economic residency. It is nearly 150 years since the British economy was the largest in the world, fed by an expansive Empire.
Yet today, London is still the largest international financial centre and ranked as the number one centre in most surveys of international business. New York will survive as an international financial centre long after the relative decline of the US economy. The major financial centres of Europe will survive relative economic decline in Europe.
Indeed, the major financial centres of continental Europe tend to be in countries with relatively small economies, such as Switzerland, Luxembourg, Ireland and the Channel Islands of Jersey and Guernsey. This underscores that what makes an international financial centre is not so much a strong underlying economy, but good access to markets and infrastructure, an abundance of qualified, experienced people, inexpensive and trustworthy legal systems and effective and appropriate regulation.
The success of the financial centres in the Gulf – like Dubai, Bahrain, Abu Dhabi and Qatar – will depend more on these factors than, say, the price of oil. Therefore, there is still reason for financial centres in the Middle East to add to their strength by developing closer links with European centres, such as joint arbitration centres, and common rules for asset management products that could then be sold in both European and Middle-East centres.
Finally, just as a financial centre may be detached from the underlying economy, relative economic decline in Europe does not mean that there are not highly successful companies and extremely wealthy individuals resident there today and in the future. I would not write off Europe as a market, as a source of leading products and people just yet.
Do Europe’s political leaders have what it takes to put the right governance structures in place for financial sustainability?
The arrival in 1999 of a new, single currency for the world’s major economic blocs was a historic achievement. A dozen years later, we are discovering that it is still a work in progress. Developing the governance and institutional structures around the euro are is easy in democracies at the best of times, and especially in economic recession when the electorate becomes more inward looking.
By and large, European politicians know what needs to be done, but they will say that they do not have the political mandate from their electorate to get it done. This is why, rather strangely from a political point of view, the initiatives are being led by the politically independent, such as the European Central Bank (ECB).
The move by the ECB to effectively be a lender of last resort to European banks and governments – the kind of role central banks ordinarily play in sovereign countries – has made me more optimistic that there is, finally, an end of the road of the credit crisis in Europe.