Euro­pean fi­nan­cial cen­tres will sur­vive debt cri­sis

The Pak Banker - - Front Page -

DUBAI

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.

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