WE CAN THRIVE OUTSIDE EUROPE

The Mail’s City Editor has always been pro-EU. In this distinguished essay, he explains why he’s changed his mind — and rebuts Jeremiahs who insist we’d be mad to leave

THERE can be few British institutions that have demonstrated the robust survival skills of the City of London. Over the centuries it has faced the greatest of challenges: from the Great Fire of London in 1666 to the south sea Bubble of the early 18th century which caused the mother of all market crashes; from the moment in 1931 when the gold standard pegging the pound to gold was abandoned and our currency collapsed, to the World War II campaign of destruction by the Luftwaffe.

In more modern times it has shrugged off the IRA bombings of the 1970s, Ted heath’s three-day week and the sterling crises of the late 20th century — and, of course, the great financial crash and recession of 2007-2009.

The City’s story is an extraordinary one of survival and, yes, prosperous growth in the face of continual threats to its physical and commercial existence. Whatever has been thrown at it, the City has simply become more and more important to our national wealth. Yet this week, a growing number of City bigwigs — in a campaign orchestrated by No 10 — have issued apocalyptic warnings about the dire consequences of Britain leaving the EU.

As a financial journalist who has chronicled the ups and downs of the square Mile for more than 40 years, I admit that I have broadly been a supporter of the European project — largely because it has kept the peace after the horror of the two world wars, and because sensible trade co- operation ought to benefit us all.

But increasingly I have come to despair at the economic and financial folly of trying to knit 27 diverse economies and political systems together. Indeed, the more I witness the stifling economics of the EU, the financial incompetence of the eurozone, the fetid state of the European banking system and its sloppy and ill- conceived decision-making, the more convinced I have become that Brexit — leaving the EU — is the right thing for the nation and the City.

Because of the global status of the City of London, I believe we would not only survive financially outside Europe, but thrive.

Despite the concerted Government campaign to convince everyone that leaving the EU would be a disaster, the chairmen and chief executives I have spoken to — from some of the largest businesses in the UK — suggest we would be no worse off.

They are not alone. Only yesterday, the Mail reported that the Organisation for Economic Co- operation and Development (OECD), the world’s top economic institute, believes it is Europe rather than the UK whose financial health is currently at risk. The refu- gee crisis, the lack of market reforms across the EU and the economic stagnation generated by the austerity policies of the eurozone are damaging Europe as a trading bloc and destroying business investment, it said. Meanwhile, the OECD forecasts that Britain’s financial growth, with the rocksolid foundation of the City behind it, will, at 2.1 per cent, outstrip that of France, Germany and even America this year.

The truth is that in times of strife and turmoil such as the current eurozone crisis, the City, with the superior financial services it provides, has always become even more vital to Britain’s and the world’s economic health.

For many groups of international traders, its free markets offer an escape from the stifling tax and regulatory systems that exist in so many other countries, not least in Europe.

Indeed, by remaining in the EU we risk anti-business measures being imposed on the City by Europe, which has long been inordinately jealous of London’s financial success.

The City is already suffering from damaging EU-imposed red tape such as financial directives and regulations on bonuses, all of which it would escape if we left.

Frankfurt and Paris are desperate to see additional EU regulations and taxes imposed on the City, which would slow commerce and, by doing so, make their own financial centres more attractive business propositions.

The City’s overwhelming global influence is shown not only in the myriad foreign financiers who work here but also in its geographical expansion.

WHEREAS it was once confined to the square Mile — technically still the definition of the ‘City of London’ — its financial services have moved not just east to London’s Docklands and the sprouting towers at Canary Wharf, stratford and beyond.

To the west they also occupy offices in Mayfair and the West End, which has become the home of hedge funds, private equity and venture capital firms.

The City is the biggest generator of income for the Exchequer and the leading exporter of financial services to the world, worth some £95 billion a year.

The great three pillars of the square Mile — the London stock Exchange, Lloyds of London and the Bank of England — remain as dominant in global financial affairs today as when they first emerged out of the coffee houses and early banks of the 17th century.

The City today remains the world’s primary financial centre, a role it cemented through the 19th century when the British Empire was at its height.

Its ability to reinvent itself in every generation is a huge tribute to the ingenuity and entrepreneurship of a merchant workforce attracted to its trading floors from every corner of the earth.

Over the years there has been a litany of dire warnings about our global financial pre-eminence each time Britain has refused to go

along with the EU’s march towards a superstate.

When we declined to join the single currency in 1999, we were warned of the enormous damage that would be done to London as a financial centre.

Bankers would flee to Frankfurt and Paris or follow the money to booming Asian financial centres in Hong Kong, Singapore and Shanghai, we were told. But while there has been some exit of talent to the East, almost no major financial institution has felt bold enough to make the shift away from London.

In fact, many global banks, including the mighty New York investment bank Goldman Sachs, have chosen instead to locate themselves in London, building ever larger and more lavish global headquarters.

Even the much-criticised internet giants such as Google have decided that Britain, with its range of consultancy, legal and financial services, is the place to be in Europe.

The truth is that this scaremongering by financial institutions over failing to sign up wholesale to the European project has very little basis. Instead of the City’s significance being diminished each time we refuse, the reverse has happened.

After Britain’s chaotic expulsion from the euro’s predecessor, the European Monetary System, in 1992, for example, the economy soared.

When the then Labour Chancellor Gordon Brown chose to exclude us from the single currency project in June 2003, the UK economy was saved from the abyss.

We must remember, too, that Britain truly is an international centre, not just an outpost of Europe. Despite having only two runways at Heathrow, we remain a geographically favoured offshore financial centre, well placed to deal with the needs of Asia and America.

This explains why the City has attracted 250 foreign banks to these shores. And why it dominates the foreign exchange markets, and sets interest rates and key commodity prices for the rest of the world.

It also has Europe’s most vibrant stock and derivatives markets and, with its tradition of innovation, is becoming one of the world’s most important centres for so- called FinTech, the digital financial revolution, for the next generation.

The euro enthusiasts and some of the banks and financial institutions claim that if Britain leaves the EU, tens of thousands of banking and financial jobs will decamp to Paris and Frankfurt, giving them the opportunity to usurp London’s hegemony. I profoundly disagree.

Some jobs will certainly go. Although Britain’s biggest bank, HSBC, has decided to remain headquartered in London, having conducted a £40 million study of the pros and cons of leaving for Hong Kong, it estimates that it may have to move 10,000 jobs to Paris.

Goldman Sachs, which, along with the New York’s J.P. Morgan, is supporting the stay- in campaign, says up to a third of the 6,000 or so staff at its London HQ will have to shift to Frankfurt.

This is understandable — being based in an EU country provides financial institutions with a socalled ‘passport’ which allows them to trade currencies, bonds and shares across European borders more easily.

So yes, there may be a shortterm price to pay as some of the biggest investment banks send some employees to the Continent. But these would, in all likelihood, be replaced by countless workers from India, China, South America and elsewhere in the world as we focus on the global market.

In any case, the number of jobs we are talking about is a fraction of the total employed by the big investment banks and will have a negligible effect on the power of the City to lure investment and workers to Britain.

In recent years, for instance, tens of thousands of French citizens and Greeks — often with the advanced numerical skills required to thrive on trading floors — have migrated to Britain in search of bigger salaries and better lifestyles.

Parts of London have become ‘ suburbs’ of Paris, with many bankers doing weekly commutes. At times certain continental banks have employed more people in the Square Mile than they do in their own countries.

Would all this survive Brexit? My frequent conversations and meetings with leading figures in banking, at the Bank of England and in the insurance industry, certainly suggest it would.

The Bank of England has noted that the uncertainty engendered by the Brexit debate may have caused turbulence for the pound. Yet our currency remains firm against the euro, because of Britain’s more robust economy, if a little weaker against the dollar.

One senior Bank of England official told me recently that he would not be concerned if some jobs moved overseas to Europe, because the City is so good at embracing the next cutting-edge development in financial trading.

He noted that the City and the UK are already pioneers of the latest financial technology, with the creation of internet banks offering highly personalised services only on the web, and companies such as Worldpay, which arranges secure internet payment systems and recently floated on the London stock market with a value of £6 billion.

Financial innovation naturally gravitates towards the City because it offers favourable conditions for business and has always done so.

Back in the 1960s and 1970s, U. S. and continental investment banks transferred operations to London after successive American governments imposed taxes which made it expensive for foreign corporations and governments to raise loans and issue bonds on Wall Street.

Within a few short years the entire business of raising loans and credits in foreign currencies had jumped across the Atlantic to the City and what became known as the Eurodollar, Eurobond and syndicated loans markets firmly established themselves here.

It was these new markets which, in turn, attracted the major American investment banks to the City. And after Mrs Thatcher’s epochmaking ‘Big Bang’ reforms of the 1980s, which relaxed regulations to make financial dealing easier, the City of London became still more international.

It’s true there have been downsides to this story of vibrant financial development. In the run-up to the recent banking crisis, many of the complicated financial products known as derivatives, which were traded around the world and later imploded in value, were invented in the UK’s dealing rooms.

It may not have been the finest moment in the illustrious history of the City, but it does demonstrate the continuous ability of traders based in London to adapt and re-invent themselves as the needs of global finance change.

For all their bravado, none of Europe’s would-be financial capitals, such as Frankfurt, Paris and Amsterdam, has the same deep traditions of global banking, commodity and share trading as London.

That is why in recent decades, as growth exploded from Brazil to China, so many natural resources firms chose the London Stock Exchange to float and trade their shares.

In the City they encounter not just free, open and well-regulated markets but all the skills they need for fundraising, mergers and acquisitions and other corporate dealings.

The big law and accounting firms in the City are part of a professional infrastructure that would be almost impossible to replicate on the Continent.

Equally, the uniquely can- do approach to capitalism and free markets in London would be anathema to Paris and Frankfurt.

Europe’s habit of stifling enterprise and slowing markets is antithetical to everything the City of London does. Its compulsion to regulate, to tax and to boss individuals and institutions around is fatal to commercial success.

The idea that right-thinking banks and markets from around the world would abandon the City for the calcified environment of the European Union is fanciful.

This island nation can do very well on its own, thanks to a City of London that has seen off innumerable threats to its existence over many centuries, and will continue to do so.

The pound remains firm against the euro They have bravado, we have tradition London is famed for its can-do

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