Jitters in the Square Mile
Lascelles, David, New Statesman (1996)
The City is on edge, fretting about threats from European financial centres and hi-tech trading.
For centuries the City of London has survived through a mixture of buccaneering and plain muddling through. No conscious growth strategy put it at the top of the international financial league, no national plan enticed 500 banks in from 100 different countries, no tax incentives made it home to the multi-trillion-dollar international foreign exchange and bond markets.
The flexibility and pragmatism that are the City's hallmarks have encouraged entrepreneurship and innovation on a scale never previously seen in financial history. Yet there is a noticeable frisson rippling through the square Mile these days. People are asking: can it really go on like this? Will the City's freewheeling days soon be numbered? Has the time finally come for some heavy strategic thinking?
The immediate trigger for these anxieties is European monetary union, with the new financial order that it holds out for Europe: unified markets that may no longer see London as their hub, the rise of rival financial centres, the imposition of new centralised tax and regulatory regimes to smother all that famous flexibility and pragmatism. But further out there is an even more unsettling prospect: that the growth of alternative methods of financial dealing on the Internet will do away altogether with the need for financial centres. Why buy expensive office space in London to deal in markets that occupy the ether and can be accessed just as easily from New Jersey or Bali? What happens to London then, let alone Paris and Frankfurt?
None of these scenarios is a foregone conclusion. In fact the City is deeply divided over all of them. On EMU, a sizeable segment worries that the City will suffer if the UK stays out. The dynamism of the markets on the Continent, the argument goes, will lead to a shift in Europe's financial centre of gravity and gradually drain business out of the City. The threat is made worse because both Paris and Frankfurt are hungry for business and have put together highly organised campaigns to win it. In Frankfurt, for example, the drive is spearheaded by Finanzplatz Deutschland, an alliance of the stock exchange, the Bundesbank, the big banks, the city council and anyone who's anyone in finance, all headed by Rolf Breuer, the chairman of both Deutsche Bank and the Frankfurt stock exchange.
But an equally robust segment in the City takes the view that London has nothing to fear from EMU, in or out. London's position is so strong and its rivals are so small and inexperienced that there is very little risk of that shift taking place. Nor could euroland force, it to happen through regulatory means: such discrimination would violate the Treaty of Rome.
After nine months of EMU the evidence supports the second camp. The centralisation of activity that the single currency encourages is largely occurring in London: foreign banks are grouping their operations in the City to cover euroland. More people are employed by foreign banks in London than ever before, and more euro-denominated business is settled through London-based markets than through all of euroland put together. Even Breuer has just spent [pounds]300 million on a new international headquarters in London. He says: "London will no doubt remain the leading centre in Europe, thanks to its advantages of size, excellently qualified personnel and the attractive tax, legal and cultural environment."
On virtual trading, too, the City is confused. Having suffered the nasty shock of seeing the bulk of trading in the important market for German interest rates slip from London's colourful but expensive floor-based markets to Germany's faceless but inexpensive electronic market-on-a-chip, the City is getting to grips with new realities. The growth of on-line stockbroking and banking, the disappearance of physical markets: all this is very unsettling for a community accustomed to exchanges and trading floors full of people shouting at each other in a very unvirtual way. …