4 July 2018

Open Europe recently co-hosted an event with Reuters in Brussels, to discuss the importance of the City of London for the EU27. Below is an overview of the event.

On June 19, Open Europe hosted an event in Brussels, titled “The significance of London’s financial cluster for mainland Europe.” The panel brought together Jeremy Browne, Special Representative for the City of London to the EU and a former UK Minister of State for Foreign Affairs; Nicholas Mackel, the CEO of Luxembourg for Finance; and Huw Jones, Business and Finance correspondent at Reuters. The debate was moderated by Pieter Cleppe, the head of Open Europe’s Brussels Office. A short summary of the event follows and the debate can be watched in full in the video below.

The City of London will remain important for EU businesses – within limits

Jeremy Browne was the panel’s first speaker. He acknowledged that while “there is clearly an asymmetry between the scale and the power of the EU27 and that of the United Kingdom,” that asymmetry “is not precisely the same in every sector.” This asymmetry, Browne argued, is particularly absent in financial services, an area where London’s status is truly global. On the question of firms relocating to the EU after Brexit, Browne said that “there will be some services that need to be specifically licensed in the EU,” but that the scope of said relocation will be relatively limited.

Nicholas Mackel largely agreed, saying, “It’s so much more efficient to go to London… There is an eco-system [in London] geared to supporting that [financial services] activity.” Mackel added, however, that if firms need to leave London, they will, explaining “If there is a barrier between the German corporate clients and the banks in London…  [Business] will flow to Germany, where the client is.” Huw Jones added that there are limits to the EU’s reliance on the City. “People no longer believe that the European capital markets will collapse without the City,” he argued, adding, “There will be problems, there will be fragmentation, there will be costs, but the sense I’m getting from EU policymakers and businesses is that’s a price they just have to pay in the short-term.”

The argument that Brexit will see limited, rather than wholesale relocation of financial service jobs tallies closely with one of the conclusions in our recent report, Striking a Balance: A blueprint for the future UK-EU economic partnership. In the report, Open Europe argued that “despite the likelihood of some client facing roles and operation being moved from the UK to an EU jurisdiction, the high degree of existing capital market integration is likely to mean that substantial amounts of existing EU business will continue in London.”

The City of London’s global status is not primarily the result of EU membership

In our October 2016 report, How the UK’s financial services sector can continue thriving after Brexit, Open Europe found that the notion that the City of London’s success is based on full and complete access to the EU single market in financial services is not borne out by analysis. Whilst the City has benefitted from the liberalisation of EU markets, its strengths are both global and domestic. Jeremy Browne’s comments at the event sounded a similar note. As he pointed out, “Most of the activity in the City of London is not connected to the UK’s membership of the EU,” but is rather the result of a range of different factors that make London a “unique eco-system.” He emphasised that London’s predominance had not happened by chance, asking, “If Paris is the best city in Europe to have a global financial centre, why isn’t it in Paris already?”

Diminishing the City is not in the EU’s interest

Browne cautioned against the idea that “the EU’s interests are served by trying to diminish non-EU states to the advantage of EU states. I don’t think a diminished, poorer UK is in the EU’s interests.” He further added that hostility towards the City could damage the EU’s global reputation, saying, “I would be hard pressed to find someone in Beijing who thinks the solution to Europe’s relevance and competitiveness problems is diminishing the City of London.” Mackel agreed, noting that his country, Luxembourg, has taken a more nuanced attitude to Brexit than others because of its “symbiotic” economic relationship with London, especially in terms of investment funds.

Disaggregating the City across the EU would lead to reduced efficiency and increased costs for European businesses

Expanding on his point that a good deal for the City was in the EU’s interest, Jeremy Browne argued that “Disaggregating a very efficient hub into a series of smaller, less efficient mini or micro-hubs within the EU creates less economy of scale, and therefore higher cost, and therefore a less efficient distribution of capital.” He emphasised that because there is no one obvious destination for businesses to relocate to, fragmentation is likely: “I’ve never heard a French commentator argue that jobs should go to Frankfurt or Dublin, they take a very narrowly French view… It is each nation state making the case for each nation state.” Nicholas Mackel additionally argued that while Brexit is likely to narrow the gap between London and other EU financial centres, none are likely to actually overtake London even in the long-term.

The European Commission has shown a lack of appreciation of the uniqueness of the UK-EU relationship

In emphasising Luxembourg’s “pragmatic” stance on Brexit, Mackel pointed out that it agreed with other member states that “if you are leaving the club, you cannot have the same rights and access as you had when you were a member.” However, he also called on the EU to appreciate the unique nature of the UK’s “very deep economic integration” with the EU: “When I hear proposals about drafting an FTA [free trade agreement] like [those with] Japan, Canada, South Korea [as a model for Britain’s relationship with the EU] I think: wait a second, what has happened in the last 45 years? We cannot treat the UK as a country [like Canada]… We cannot pretend as if 45 years of economic integration hadn’t happen.”