Michael Cassidy, chairman of the policy and resources committee of the Corporation of London, is a fine fellow in many respects, but he really does talk a lot of nonsense when he sounds off about the danger European Monetary Union poses to the City's position as Europe's pre-eminent financial centre. He's been at it again this week, warning that the new settlement system for large scale transactions in the euro could cost the City thousands of jobs.
Now there is no doubt that a major league row is going on behind the scenes between the likely "ins" and the "outs" about access to this system. The two most committed ins, Germany and France, want the outs to pay more for using Target (the system's acronym) than the ins. They also want the European Central Bank to charge the outs more for the provision of short- term liquidity in the euro. The likely outs, led by Britain, argue that this is discriminatory and against both the spirit and the letter of the Treaty of Rome. Plainly, this is an issue of some importance, otherwise the Bank of England would not be in there arguing about it at single currency meetings being held under the umbrella of the European Monetary Institute.
But its significance is actually more political than commercial. The ins have taken the view that anyone not wholly with them is against them and they are determined to penalise these wayward souls on every available front. This is but one of them. Exaggeration? Just a little, but not much. The "them and us" mentality seems to permeate every aspect of negotiations about monetary union. With Target, there is also a subtext. By disadvantaging London, there's just a chance, German and French policymakers believe, that financial markets might start gravitating to Frankfurt and Paris. This is what Mr Cassidy is talking about when he warns about the threat to jobs in the City. In practice, however, it is highly unlikely that a marginal difference in the cost of settlement is going significantly to alter London's competitive position. Alternative methods of providing adequate liquidity will be found. Indeed, because London will not be obliged to meet the stringent capital requirements of the ins, there may actually be some advantage in being out. The City is an ingenious place. It is no accident that the main market in bund futures is in London, when logically it ought to be in Frankfurt, for London is where the traders are and like to live, this is where the systems and infrastructure exist, and this as a consequence is where it is done best. The City has always thrived because it is out rather than in. It has a thousand year tradition of loyalty to none but itself. And that is also why, once the great bandwagon of monetary union starts rolling down the runway proper, sterling will become as much an irrelevance for the City as it is for the rest of Europe - an exotic little inflation-prone currency. The City has survived and prospered on events far more traumatic than the arrival of the euro. For the City at least, Monetary Union is not much of an issue at all. A blow to the reputation of Finsbury Square This time it isn't possible to blame rogue traders in far away places. This time there is no fraud, in the generally accepted sense of the word, for senior managers to excuse themselves with. And this time, unlike the recent Jardine Fleming case where the financial damage was limited to just pounds 12m, we are talking about a very substantial hole in the accounts of what are supposed to be bullet-proof unit and investment trusts. …