By Arab News
By Ranvir Nayar*
For almost three years, there has been a beauty contest of sorts going on in Europe. Ever since that fateful date of June 23, 2016, when British voters narrowly approved Brexit, one of the biggest questions about the future was what would happen to the vibrant financial services industry that was almost entirely based in London.
Quite early on in the Brexit debate, the EU made it very clear that, if the UK opted out, London would lose its special position of being the largest clearing house for euro-denominated transactions, even ahead of euro zone financial centers like Frankfurt. By allowing euro transactions to be settled in a non-euro country, it was essentially a marriage of convenience.
London has long been one of the primary financial services hubs in the world, second only to New York, and hence it was home to by far the largest banking industry in the EU. It was natural for London to be the clearing house for practically all financial transactions — be they in euros or any other currency — for the entire EU and notably the euro zone. For euro debt and interest swaps, London had a monopoly, with 90 percent of such transactions passing through the British capital.
Now, however, the European Central Bank (ECB) has indicated that the euro zone clearing house would need to be moved to within the zone, meaning London will almost certainly see losses in its market share, as the largest players — European, British and global banks — try to hedge their bets by moving euro-based operations, at least partially, to within the euro zone or at least a member of the EU.
It is in this context that nearly half a dozen European cities have been preening themselves in order to attract suitors from the banks that are looking to set up or step up their presence in the post-Brexit EU. There are diverse players in the race. One of the leaders is the euro zone’s largest financial center, Frankfurt, which is also in the largest euro zone economy — Germany — and is home to the ECB, the regulator of the euro zone.
Frankfurt has been preparing to welcome the financial services industry by building nearly a dozen tower blocks in order to house offices and residential accommodation for the hundreds, or even thousands, of professionals that could eventually set up base in the Western German city.
It is hoping to receive as many as 30,000 people, including the families of the financiers who could eventually be relocated. In addition, the German government has been trying to offer sweeteners like favorable tax regimes and operational ease to get the bankers to set up camp there. Others in the race include Madrid, Dublin, Milan, Amsterdam, and Luxembourg.
But the surprise leader of the pack is the French capital, Paris. The French government and the city’s administrators have been running an aggressive campaign to promote the city, its position as the luxury, fashion and cultural hub of Europe, and its cosmopolitan nature to get finance industry professionals to choose it over other European rivals.
But it is not just by running attractive marketing and promotional campaigns that France can hope to attract the finance gurus. French President Emmanuel Macron realized this early on and has carried out a series of key reforms that have made the economy and the capital city much more attractive as a location for new businesses to set up.
Last year, over opposition from trade unions, Macron passed a series of laws that have made hiring and firing much easier than before. With this, he has tried to, at long last, get rid of the image that one can only hire workers in France, never fire them. Macron also pushed through reforms covering the setting up of new businesses and streamlined tax regimes in order to enhance the ease of doing business in the country. These reforms already seem to be paying off, as the unemployment rate has fallen and the number of new businesses set up has increased.
France is also well positioned in the financial technology industry and has a healthy innovation and startup ecosystem — perhaps one of the best in the EU. These factors will come into play when London’s banking bosses begin to seriously start relocating their staff.
Besides significant reforms, Paris has also been investing heavily in building new infrastructure to receive the finance professionals. La Defense, which is the main business district in the French capital, is seeing nearly a dozen new towers spring up in preparation to receive at least 10 banks that have said that they will move, at least partially, to the French capital. The city is also improving its transport and leisure facilities, mainly due to the fact it will host the Olympics in 2024.
By winning over the bankers, the French and indeed other Europeans are hoping to not only attract thousands of workers in the finance industry, but many more in the associated service industries, from restaurants to child care and education to leisure and entertainment. The impact on the local economy would be significant, even if the cities get only part of the banking business from London. Big bucks are indeed at play here. The winner or winners would be known by the end of this year.
- Ranvir Nayar is the editor of Media India Group, a global platform based in Europe and India that encompasses publishing, communication and consultation services.