LONDON – FOCUS
The City of London, already campaigning hard against EU proposals for regulating banks, is now hitting back at a threat to its dominance of the vast market for trading in euros.
The latest perceived attack on the supremacy of the City came last week from the governor of the Bank of France, Christian Noyer.
He objected to the fact that Britain, a member of the European Union but not of the eurozone, should have captured by far the biggest share of trading in the euro.
London handles about 40 percent of world trade in euros, more than all of the 17 eurozone members combined.
Noyer said in a reference to London and its place outside the eurozone, “It is clear there is no rationale for having the biggest financial center active in our currency or providing services in our economic union being an offshore center.”
Noyer, who also sits on the policy-setting governing council of the European Central Bank in Frankfurt, said: “The American authorities are not against the U.S. dollar being traded in London, but they are very keen on not having the essential business being done outside the U.S. We are the same.”
His remarks provoked a mixture of suspicion, given that anti-EU sentiment is running high in Britain over perceived interference by EU authorities, and of scorn given the dominance of London, alongside New York, in global finance.
But there was also some anxiety that London cannot drop its guard if it is to keep the City’s crown in place.
Financial services are vital to the British economy. The City is the so-called square mile at the heart of London where financial and supporting activities such as law firms are concentrated.
The flamboyant but influential mayor of London, Boris Johnson, said of the remarks by Noyer: “This is a desperate French attack in an effort to make something out of the eurozone crisis. It’s nothing more than a naked attempt to steal London’s financial crown. It shows utter contempt for the principles of the single market (in the EU), and it will not succeed.”
For the government, Business Secretary Vincent Cable, said while on a visit to France the remark “rather contradicts what I’ve heard from serious French bankers.”
“They take the view that a strong British finance center is good for Europe,” he said.
Cable argued that all of Europe benefited from London having established itself as the world’s leading financial hub, pointing out that hundreds of thousands of French workers had moved there because of the career opportunities.
“We want to be part of the European single market in financial services and we see the City (of London) as part of it,” he said.
As the date for the creation of the euro in electronic form in 1999 approached, there was much debate about whether Frankfurt, the home of the ECB and the main financial center in Germany, or London, would dominate finance across Europe.
But from the outset is was evident that the business was going mainly to London, drawn by the long-established concentration of financial expertise and supporting services, by the English language, by business-friendly labor and tax laws, and by the buzz of London living if not by the living costs.
“Unfortunately, history is rather against Mr. Noyer on this matter,” said Simon Derrick, an economist at U.S. bank BNY Mellon.
Fourteen and a half years after the launch of the euro, “London’s position as the key center for the region looks stronger than ever,” Derrick said.
“London has been a trading hub from almost the point it was founded by the Romans in A.D. 43,” he said. “London’s position looks strong for the moment at least.”
However, the British government and the financial sector are increasingly concerned that they in particular will suffer from new banking union regulations being pushed by the European Commission.
A central concern is that the ECB, which is to become the overall supervisor of banks in the eurozone will in fact gain powers of oversight throughout the EU and so vitiate the function of the European Banking Authority, which is based in London.
And Noyer made his thrust at a time when Britain is becoming concerned about the decline of London as a financial center on the changing global stage, relative to such cities as Hong Kong and Singapore, where regulations are less restrictive.
The economics consultancy CEBR published a report recently suggesting that London would lose its top place in terms of the number of people employed in finance to New York this year and in 2015 would come third behind Hong Kong.
But the City of London has just published a report that found that nearly half of all jobs created in the whole of London this year were linked in some way to financial services, despite the downturn in the economy.
Many jobs have been cut in the financial sector, in investment banking for example, but these have been matched by growth in insurance and fund management.