UK Edition
The banks would all move to Frankfurt. The dealing rooms would switch to Paris. And the asset managers would decamp to Amsterdam and Dublin.
After the UK voted to leave the European Union five years ago, our main rivals on the other side of the Channel poured a huge amount of energy into destroying the City of London. Control of the continent’s key financial centres was the one prize it wanted above all others, while losing all those lucrative jobs would be the killer blow that would make the British regret their decision.
But in the last few weeks it has become clear that plot has failed, and failed badly. We learned over the weekend that London has already reclaimed its position as the key centre for equity trading.
No more than a handful of jobs have drifted away, and most of those that have are simply ticking a few boxes to comply with the rules, while only this week London has started redesigning its listing rules to encourage more tech floats.
In fact, the EU played its hand very badly. There was a real threat to London’s pre-eminence, but as so often the EU believed it could regulate its way to victory. Its strategy was all stick and no carrot, and that was never going to work. The UK has had a lucky escape - but right now it looks as if the City is safe.
When Britain voted to leave the EU five years ago, the bloc had plenty of different objectives. It wanted to keep the UK close enough to control, maintain the unity of the remaining 27 members, and squeeze as much money out of us on the way out as possible. But one arguably took precedence over all others. It wanted to kill off the City.
London’s position as the continent’s key finance centre, with its banks, brokers and asset managers enjoying unrestricted access to Europe’s markets, had long irritated the French and the Germans. This was the moment to seize the prize.
Plenty of money and energy was poured into the campaign. France sent an endless series of delegations to London to flirt with bankers: at one at The Shard in 2017, its officials promised to relax redundancy rules for firms moving across, while personal tax rules were tweaked to tempt executives to relocate.
The Paris bourse even allowed firms to download the licensing forms in English (quelle horreur!), while France’s then-prime minister Manuel Valls promised to "build the financial capital of the future".
Frankfurt poured money into opening international schools for all the financiers moving across, while Berlin opened a permanent office in London to deal with what it believed would be a flood of applications. Financial services were deliberately excluded from the Withdrawal Agreement to ramp up the pressure on the sector.
There was nothing ridiculous about any of that. The opportunity was there. Much like any industry finance depends on market access and a sympathetic regulatory environment. Many banks genuinely thought they would have no choice but to move their offices. The plans to move tens of thousands of staff were real enough.
And yet, in truth, it has all fallen very flat. Amsterdam claiming top spot for equity trading from London in the immediate aftermath of our departure attracted a lot of attention, but in less than six months London has moved back into first place (allowing trading in Swiss shares, banned in the EU after the country declined to sign up to Single Market rules, made a big difference).
Only a few jobs have been transferred, and those have easily been replaced. Sure, there will be the occasional attempt to reboot the campaign. Only last week, President Macron was rolling out the red carpet to welcome finance leaders such as JP Morgan’s Jamie Dimon to a reception at Versailles, prompting the usual flurry of "City under threat" headlines.
In truth, most people will accept an invite to a party at Versailles if it turns up in their inbox. It doesn’t mean they are about to shift more than a few token jobs across the Channel. The blunt truth is the chance was there, and yet the EU managed to blow it.
Why did it go so badly? First Paris and Frankfurt, along with the Commission officials in Brussels, put way too much faith in rules and regulations. As so often, they appeared to believe they could simply legislate their way to commercial success. If they just put enough restrictions on trading, and came up with the right kind of laws, then the financiers would have no choice but to move.
And yet most of those rules can be easily worked around. If trades need to be executed through a computer somewhere else it is nothing the IT department can’t fix in a few days, while if a partner needs to be dialled into a conference call from a different European city that can be arranged at little extra cost.
Even worse, when business couldn’t be done in London, it could be switched to New York - which has market access - instead. The rules were not crucial.
Next, it was all carrot and no stick. The really bold move for Paris, Frankfurt or Amsterdam would have been to carve out a financial free trade zone, with lower taxes, easier employment rules, and lighter regulation (in effect, a bigger Monaco). Now that would have been a threat. But Brussels has long since forgotten that business needs incentives. It sticks rigidly to the dogma that threats are always enough.
In truth, the EU has made a mess of this. It has failed to win any significant business from Brexit. And the continent’s main financial centre - significant for a bloc that floats on a sea of debt - is now outside its regulatory orbit. Brussels has failed in lots of ways over the last couple of decades, from mis-managing the single currency, to stifling industry in red tape. But this will go down as one of the most glaring failures.
The EU plot to destroy the City has been a catastrophic failure
Brussels believed it could regulate its way to victory, but its all stick and no carrot strategy was never going to work