Canary Wharf banking district in London
Photo: Dan Kitwood / Getty Images
There has not been such a drastic event since the Big Bang in 1986, but now the City of London, hitherto the second largest international financial center, has lost access to its most important market with Brexit. In the exit agreement with the EU, next to nothing is regulated for the financial sector. Trillions of financial assets and billions of sales flowed immediately to the continent, and almost overnight trading in European stocks has largely shifted to core Europe. Even at the beginning of the year, more stock trades were being made in Amsterdam every day. The average daily balance since then - 9,2 billion euros in sales in Amsterdam against 8,6 billion in London. A stock exchange specializing in trading European stocks like Aquis Exchange has meanwhile lost more than three quarters of the sales that are now processed in the EU by its continental European branch.
The trend is clear: the city will continue to lose and even more. So it is only a matter of time before London has to give up other business areas. If you want to continue playing in the EU, you have to get branches on the continent. Tradition and sounding names count little if the British financial institutions, finance lawyers, tax and investment advisors are no longer allowed to offer their services in the EU, as is currently the case.
This is no small matter for Great Britain, the financial sector generates over 150 percent of the UK's economic output with annual sales of over 7,5 billion euros. It employs over a million people, more than 400.000 of them in London, and a good eleven percent of the tax revenue for the treasury comes from this sector. British financial service providers have so far transacted over 40 percent of their business with customers from the EU and achieved an export surplus, most recently over 71 billion euros per year.
Why does the Tory government acknowledge this quite unmoved? Why is next to nothing stipulated in the contract? The city bosses can only hope that the EU Commission will recognize the British regulations as more or less equivalent at the suggestion of the European financial supervisory authority. Or maybe not. Brussels is in no hurry, so far two exceptions have been decided for a period of 18 months, including for the British clearing houses, which process around 90 percent of European derivatives trading.
That leaves Asia
The winners are the EU financial centers in Frankfurt, Paris, Amsterdam and Dublin. They can increase their employment and place several thousand well-paying jobs for highly qualified financial specialists. The EU financial centers also benefit from “Brexodus”, the emigration of mostly young, well-educated EU citizens from Great Britain, and numerous start-ups in the financial tech industry had good reasons to opt for Berlin rather than London.
In the foreseeable future, the financial center of London will focus its attention more on Asia, although there are relevant rivals such as Singapore, Hong Kong, Shanghai and Tokyo to be fought off. Without exception, financial centers that have at least the same expertise, the same networking and the same specialization as their competitor City. In addition, Asians work with less fantastic salaries and bonuses than the British are used to.
It is part of Boris Johnson's populist habitus to ostentatiously care little about the interests of the money elite. He also had Brexit friends in the city who believed that the exit from the EU would leave their business unscathed because the continental Europeans could not do anything to oppose the financial center of London. Since the opposite turned out to be correct, the City, which has been an independent political entity in the kingdom for centuries, has three options: It can try to come to terms with the EU in order to push for the equivalence of its regulations. Or you can rely on further deregulation and confront the EU headquarters. Option three would be to ask Boris Johnson to renegotiate with Brussels - an illusory rather than realistic possibility.