Prime Minister May’s First Day to Do List
1. Handwrite letters of last resort.
2. Form a new government.
3. (Where could BoJo's diplomatic skills shine?)
4. Speak with Angela, Françoise and Barack.
5. Maintain London’s position as a Global Financial Powerhouse.
New foreign secretary Boris Johnson may be making his apologies to world leaders he’s offended. The new UK government is already making an effort to persuade the City’s financial sector to remain. Philip Hammond, the UK’s newly appointed chancellor of the exchequer, urged the new Brexit Secretary David Davis to “ensure access to EU single market for our financial services industries in London.”
Our new Prime Minister knows that London is the world's most important centre for trading foreign currencies. Almost half of the world's foreign exchange trades take place in the City. A loss of access to Europe would be very damaging to the UK economy as the financial sector and related service industries account for 12% of the UK’s GDP.
Discriminated Against and Repatriated
The terms being bandied about paint London’s financial sector as if they were refugees, not the world’s brightest business minds. Credit Suisse predicted a contraction in the UK economy in 2017, stating the financial services sector exports could be particularly “discriminated against”.
The UK has the fourth-largest banking and third-biggest insurance sectors globally. London is the world's centre for trading in commodities like oil, gold and derivatives. These firms flocked to London when Margaret Thatcher eased regulations. When pressed, they must fly elsewhere unless Britain quickly reassures them, as Hammond has said, that it is still “open for business”.
"A sizable portion of activity in Britain's financial sector is likely to be repatriated across different parts of the EU, affecting the UK economy and sterling." said Karthik Sankaran, global strategy director at Eurasia Group, a leading provider of business insight.
Losing London as an Economic Free-Trade Zone
As an EU member, the UK enjoys an EU financial “passport” which allows London’s financial sector – a sizable 6% of all UK jobs - access to the other 27 countries in the Eurozone’s single currency market. If London becomes an offshore financial centre, the billions of euros and other currencies that are currently being transacted are coveted by competing European cities.
While the new UK government crafts a system that replicates the benefits of EU passports, European financial centres will exploit the uncertainty clouding London’s future financial prospects. European cities wasted no time before wooing finance executives, touting the advantages of relocating to European financial markets.
Despite the UK opting out of the currency used by 19 members of the EU, the City handles transactions worth trillions of euros in currencies and other financial contracts. Last year Britain was in court to stop the European Central Bank from moving some of this trading into the Eurozone. With the UK out of the Eurozone, the case for trading so much of Europe’s currency becomes harder to make.
London’s status as Europe’s financial capital is challenged by Paris, Berlin, Dublin, Luxembourg and Amsterdam. Frankfurt, where the European Central Bank is located, is also bidding for the crown. That city can boast a higher quality of living, according to Mercer’s 2016 survey, and is more affordable than London.
The head of the Paris regional government has contacted 4,000 British executives, extolling the economic advantages of the French capital. Paris has Euronet, the European stock market second in size to London’s. According to French government figures, Parisian financial services firms manage €2.6 trillion assets. There are at least 5,000 investment banking jobs with French banks based in London that Paris wants to see cross the channel.
The CEO of financial firm UBS said, "The French government, the German government, a number of governments, are making…a case for people to move to their jurisdiction."
Two German cities have been promoting themselves in attempts to induce relocations. "Frankfurt is well-equipped as a stable financial centre to embrace those looking for a new base of operations within the Eurozone," stated Frankfurt Main Finance. On July 5, Londoners were treated to a mobile board reading: ‘Keep calm and move to Berlin." Berlin draws hip, young technical talent and the city claims that a startup is founded every 20 minutes.
Ireland's foreign investment agency, IDA Ireland, promoted Dublin to London financial firms. Google, Facebook, Dropbox and Twitter all have their European headquarters in the Irish capital. According to Dublin’s International Financial Services Centre, over half of the world's leading financial services firms have Dublin subsidiaries.
Little Luxembourg is home to 143 banks with combined assets worth €800 billion, which we calculate to under £700 bn or $885bn. With low corporate taxes, Luxembourg is the European headquarters of PayPal, Skype and Delphi.
Amsterdam, home to Netflix, Uber and Tesla, keenly welcomes firms seeking new European headquarters. It was Dutch finance minister Jeroen Dijsselbloem, who memorably said that losing full access to the rest of Europe was the "price" Britain would pay for Brexit.