International media say the City of London is approaching the end of an era
The City of London faces the end of an era on January 1. Established for decades as the financial supermarket of the European Union thanks to the free movement of capital, Brexit conditions access to its main customers and forces it to rethink its position in the global market
Among the workers of the sector there is some optimism about the future, based on the fact that the worst predictions have not been fulfilled so far, but being preventive in terms of the fear that the worst is yet to come.
There is also unease with the British government, which some accuse of having given priority in the negotiations with the EU to sectors such as fishing, which represents 0.1% of the British economy, compared to financial services, with a peso much higher, close to 10%.
The prime minister himself, Boris Johnson, acknowledged in his first interview after closing the pact with the EU on Christmas Eve, to the Sunday newspaper “Sunday Telegraph”, that “in some aspects, such as financial services, the agreement may not go as far as we would like”.
No European passport
Until now, British entities had a financial passport that allowed them to grant a loan to a company in Paris or negotiate a bond purchase for a client in Madrid without major complications.
Starting in January, they will operate in Europe based on a complex equivalence regime, the same one that firms from countries such as the United States and Japan abide by. Brussels can withdraw these permits almost without notice, which also leaves out key areas such as commercial banking and the insurance sector.
Those new barriers are being raised between the City and a market that represents a quarter of its annual revenue – between 44,000 and 60,000 million euros, according to the consulting firm Oliver Wyman. The rest of international clients outside the EU add another 25% of the business and the remaining half is completed by the British national market.
Optimism and changes
“We are not scared,” says Michael Hewson, an expert in foreign exchange markets at CMC Markets, who stresses that the City has been “a financial center since long before the European Union was even an idea.”
“Will it be smaller as a result of Brexit? Yes, without a doubt. I don’t think it will be able to maintain the same turnover as five years ago,” but it will retain its economic importance “for many decades,” says Hewson, one of the 522,000 employees. at financial firms in the City.
Experts stress that there are competitive advantages for London that will not evaporate with Brexit.
The time location, unbeatable to coincide with the last leg of the sessions in Asia and the opening of Wall Street; the natural use of English; consolidated financial infrastructures and a number of workers with extensive experience, unrivaled for now on the continent, among others.
Forecasts not met
Part of these good prospects is based on the fact that predictions such as the exodus of 232,000 workers from the City predicted in 2017 by the then CEO of the London Stock Exchange, Xavier Rolet, have not come true. According to the latest EY figures, only about 7,500 jobs in the sector have moved to the EU since then.
“Maybe there will be more exits next year, it will depend on the relationship that is established between the United Kingdom and the European Union, but I do not think we will see a huge flow, at least not in the next few years as some predicted,” he says to Efe Thomas Pugh, market analyst at Capital Economics and former economist at the British Treasury.
Fawad Razaqzada of the Think Markets consultancy, however, cautions that the firms may have been waiting to know the final terms of the post-Brexit relationship before deciding to undertake a “costly” restructuring.
Experts also warn that in the coming years, firms can prioritize their operations in the EU without having to execute direct transfers from the City.
From Onshore to Offshore
“The relevant thing is to see the scenario in one, two or three years”, Nicolas Véron, co-founder of the economic thought group Bruegel, warns Efe.
“Until December 31, the City of London is an ‘onshore’ financial center for both the UK and the EU”, but as of January 1 “it becomes an ‘offshore’ center” for its 27 countries neighbors, Véron stresses, who maintains that this change will be “very damaging” in the medium and long term.
“Financial services represent between 10% and 15% of British GDP, but apparently they have been held in very little regard” during the negotiations with Brussels, Hewson laments.
With information from the Sunday Telegraph, other international media and EFE agency