The EU should not underestimate the City’s status
Just how much is a reputation worth? As the UK prepares to leave the EU, status could be key for the City. A report published today by the Central Bank of Ireland found that even in the worst Brexit scenario, London will remain a leading global financial centre – and the biggest in Europe. The EU-based central bank found that even in the worst Brexit outcomes it modelled, the impact on London’s financial and professional services industry could be very small thanks to the ‘premium’ the capital enjoys.
This premium – which is a reflection of historical legacy, rather than modern metrics relating to market size or productivity – is by no means invulnerable. Future policy choices and a shift in international perception could well chip away at London’s hard-earned status. One of the City’s great triumphs, as the bank notes, is its technological prowess, which sets it apart in all key financial services sectors. If politicians and regulators want to futureproof the capital, they must continue to put the UK at the cutting edge of market innovation.
The Irish central bank may have made a pragmatic assessment of the City’s prospects, but what will the wider EU make of London’s status post-Brexit? For all the talk of restricting market access, the bloc would be foolish to turn its back on the City. The EU is yet to deliver on its floundering capital markets union project, and Brexit will force it to decide whether it wants to welcome the capital’s financial powerhouse into the fold, or turn itself inwards.
While the prospect of a no-deal exit may shake some industries, the Square Mile has prepared itself for all scenarios and emerged as the most resilient sector of the economy. What it can’t do, though, is mitigate a broader economic slowdown sparked by a bungled Brexit, and so policy-makers cannot afford to be complacent in the years ahead.
However, as the Irish central bank points out, London has garnered an unrivalled status over centuries that no forecast or survey could ever fully quantify, and this has undoubtedly fostered an additional layer of resilience. With the City’s future looking secure, by far the more interesting question is how the EU will treat the City after we part ways. Will it pursue a capital markets union that excludes London, the largest pool of capital on its doorstep? It seems unwise to do so. Ireland’s analysis should be required reading in Brussels.
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