The departure of the United Kingdom (UK) from the European Union (EU) is set to have a multitude of effects on the British economy, and it is uncertain how extensive ‘going solo’ will affect economic growth or the jobs market. One thing is certain, EU member countries are keen to make gains of the political restructuring set to take effect next March. The most visible activities of lawmakers and asset managers alike surround the threat to London’s status as the primary EU banking center. Within the infamous Square Mile, trillions of dollars in trading activities and currency transfers occur daily. In fact, London has given itself a nickname–the “Banker to the World.”
Europe already has major banking centers in Paris, Frankfurt, Dublin, Amsterdam, Luxembourg, and Madrid. Right now, Frankfurt, Germany, and Paris, France are the most attractive destinations for banks to relocate. France and other EU countries are lobbying bank executives hard on who will offer the best incentives and lure business away from London.
Just this week, France approved a measure to offer the minimum EU tax for carried interest to 30 percent before Brexit takes effect. President Macron also promised to eventually cut the corporate tax rate to 25 percent and do away with wealth taxes. And, Paris’ efforts appear to be working. Bank of America, JPMorgan, Citigroup, Morgan Stanley, Goldman Sachs, Standard Chartered, and Wells Fargo have all expressed interest bringing finance jobs to France. Reuters It’s estimated that the Square Mile could immediately lose at least 10,000 financial sector jobs as a direct result of Brexit. Reuters Here is the main reason why: London bankers that do business with European clients won’t be able to settle trades or write deals that pay in Euros. The U.K. essentially has held an EU passport for many years and built systems and infrastructure to receive, process, and transmit large volumes of the world’s currencies every day. And since that passport will be lost with Brexit, London would suddenly become unable to conduct most business with 28 EU member countries. There is, however, a bit of a wait-and-see approach among some bankers. Apparently, France has very tight labor laws which are seen as prohibitive. If French leaders can get [and keep] their constituents onboard and not appear too favorable to the wealthy and corporate, in a few years’ time Paris may very well have earned its reputation for romance and finance too.