City of London is the centre that will hold
Property prices in London’s fashionable Fulham, a favourite of French-speaking bankers and financial service workers, have fallen by 14.5 per cent since their peak in 2014, with some houses on the market for more than two years.
The French like Fulham because it is more affordable than neighbouring Kensington but still close to the Lycee Francais Charles de Gaulle, where their children take their lessons in French, and less than a half-hour travel time to the City where many of them work.
But since the Brexit vote, the French, who helped drive prices up five-fold since 2000, have stopped buying. “They don’t know if they’re going to stay, for how many years and under what conditions,” a French-speaking estate agent told the Financial Times this week. They share their uncertainty with many thousands of City workers caught up in the heated arguments over the position of Britain’s financial services industry after Brexit.
On Sunday, French president Emmanuel Macron jolted the City by insisting that the British financial services industry could not expect to keep access to the single market unless it continued to pay into the EU budget and accepted the free movement of people. “If you want access to the single market, including the financial services, be my guest,” he said. “But it means that you need to contribute to the budget and acknowledge European jurisdiction.”
Britain has no intention of doing that. Michel Barnier, the EU’s chief Brexit negotiator, has been more blunt: “There is no special trade agreement which is open to financial services,” he said recently. “It doesn’t exist. In leaving the single market they lose the financial services passport.”
Other European leaders have also been consistent in their insistence that the City, the leading financial centre in the world and the envy of Europe, is not singled out for special treatment. Already, European banks are starting to implement their Brexit contingency plans to move hundreds of staff out of London to mainland Europe. On Monday, the Swiss investment bank UBS, which employs 5,000 people in London, said that 200 of its staff would be moving, and the Bank of England has warned that up to 10,000 could go by March next year without a Brexit trade deal.
The City, however, is a lot more relaxed about Brexit than it was a year ago, reckoning that some people will go but that job losses will be marginal. UBS for instance originally reckoned that 1,000 of its staff would go. Now its chief executive, Sergio Ermotti, says that it is “more and more unlikely” because of the “regulatory and political clarifications” it has received.
The fact of the matter is that the City of London is so dominant in European markets that its position is pretty near unassailable and even the French know it. On BBC radio last week, Christian Noyer, a former governor of the Bank of France who has been given the job of luring financial services – and those French Fulham dwellers – back to Paris, said other countries might chip away at Britain’s position but that’s no more.
He’s right. London’s ascendancy has never been greater. According to the most recent Global Financial Centres Index, which ranks financial centres worldwide, London ranks number one, ahead of New York in second place, followed by Hong Kong, Singapore, Tokyo, Shanghai and Toronto. The only European city in the top 10 is Zurich, and that is not in the EU. Frankfurt, traditionally seen as a competitor to London, is at number 11, Luxembourg is 14th and poor Paris, which Mr Macron is so keen to build up, is at 26th – one place below Abu Dhabi, which ranks 25th. Dubai is 20th, nudging out Dublin, which aspires to be a world financial centre.
What’s more, London’s dominance of key European financial service markets is significant. For instance, 85 per cent of EU hedge fund assets are managed from London, 78 per cent of foreign exchange trading, 74 per cent of interest rate derivatives, 65 per of marine insurance and 50 per cent of private equity fund raising are conducted from the British capital. The London Stock Exchange accounts for nearly a third of the total equity value of all of Europe, dwarfing all the other stock exchanges. Mark Carney, the Governor of the Bank of England, calls the City “Europe’s investment banker”, which handles half the debt and equity issued in the EU.
Financial services is an industry where critical mass and size matter and often there is room for only one market centre – there is simply no point in trying to create a rival in Paris because it will never be big enough to challenge.
London plays on the international stage in a way that continental European markets never have, and the EU cannot hope either to replicate it or do without it.
“Separating the EU’s businesses and banks from the City’s markets,” says the economics commentator David Smith, “would be the equivalent, for EU countries, of cutting off their noses to spite their face.”
That doesn’t mean that Mr Macron and other European leaders are not going to try. But at the end of the day, they need the City more than it needs them.
Ivan Fallon is a former business editor of The Sunday Times