Hey financial gurus, Friday is here and here at HNFC want to share with you some of our thoughts on who is the most likely will become the next financial centre of EU.
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Like the recent heavyweight contest between Anthony Joshua and Carlos Takam fresh in the memory, there is another battle for a prestigious title brewing across Europe between the established German powerhouse Frankfurt, vying to usurp Paris in the once in generation chance to dethrone the faltering London for the chance to become Europe’s financial kingpin atop the lofty mountain that generates immense wealth and status for city that holds the crown.
We all know Brexit is looming, but what does that mean for our Financial services industry and ‘The City’ of London? Where will the jobs relocate? Who will win the Brexit race, Frankfurt, or Paris?
Well don’t fret any longer, because today here at HNFC we have you covered. We are going to start with a small statement uttered the French government that will allow us to flow onto a larger subject which is the future of London as a financial sector.
‘Don’t believe the hype about Frankfurt sweeping up all of Brexit’s finance jobs.’
Why are companies and banks leaving ‘The City’ London?
It seems like an easy question to answer, but we think that it is a question that deserves to be asked for students and young professionals to understand what could happen with their respective careers. So, just why are companies and banks fleeing London? Of course, because of Brexit but what other underlying reasons are there? The answer is simple: uncertainty. The uncertainty surrounding Brexit is threatening the companies and the banks.
The facts are here, 40% of US firms, for example, are considering relocating to a city within the EU. The eventuality that the loss of an EU passport is dire for the companies and the banks who have a lot of pressure from their consumers, which negates the free movement of capital and services. These entities are relocating their offices or creating new bases in other European cities to satisfy their EU clients.
And here is the point: where do these companies and more notably the banks relocate. In this article, we are going to focus on the duel between the new prospective financial heavyweights; Paris and Frankfurt.
What is the situation now?
Other European cities are viewing Brexit as an opportunity for them to create jobs and embed arguably the most influential and important market into their local and national economies. In fact, every 8 pounds (GBP) of taxes paid in UK, £1 is coming from the financial sector. In addition, the financial sector employs more than 1 million people in London. It is therefore understandable why the French government do not want to let this opportunity pass them by.
For the moment, the ‘Brexiteers’ are more aligned with the German direction. The European Banking city has been chosen by many businesses as their base of operations. Woori, one of the biggest Korean banks, has announced its intention to implement a new base in Frankfurt in the same way as two of the biggest Japanese investment banks Nomura and Daiwa in concordance with UBS, VTB or Bank of America.
What are the French measures?
On the French side, the new government are determined to not allow Frankfurt to prosper in their attempts to lure the financial industry from London.
Paris has so far managed to attract several Middle Eastern Banks, but also and more impressively one of the world’s biggest and best-known banks, HSBC. Germany is still more attractive for financials services regarding the taxation and labour available but the ‘aggressive’ campaign of the new president Emmanuel Macron’s government may change this and see Paris to steal a march on their German counterparts.
In fact, the Prime Minister Edouard Philippe has implemented several key measures to improve the attractiveness and allure of the City of Light. Most notably, decreasing the working costs, getting rid of the wealth tax, and reducing the taxation.
The question remains; are these reforms going to increase the attractiveness of Paris to the financial services industry? Only time will tell.
What are the actual advantages and disadvantages of both cities?
Let’s start with Frankfurt. The main asset of the German capital is the presence of some of the biggest financial institutions such as the European Central Bank or the Bundesbank. The other advantage is the presence of an international airport and the real estate prices which are far cheaper than London. It is an integral part of Europe’s strongest economy and in comparison, with their French counterparts, Frankfurt is the 30th most expensive city in the world to live in. Meanwhile Paris is the 20th most expensive city to live in. Frankfurt scores well in the fact it is cheaper for living costs and as mentioned earlier in taxation.
Yet, the image of the city is a big disadvantage for the German city far from being as ‘glamourous’ as London and Paris.
And what about Paris? Paris is a city with a very good image, culturally and attractive in terms of tourism. It also has the asset that it currently employs more people in the financial sector that Frankfurt. Paris also holds a lot of other advantages such as its free and public education, its transport infrastructure, and the business district of La Defense. Moreover, surprisingly France could be a tax haven. Even If, France has one of the highest CIT rate, it has some regulations that if manipulated correctly can amass be huge savings for companies.
But Paris has many disadvantages. In addition to not be taken seriously due to its touristic and romantic image, the rigidity of the labour law is a big inconvenience. Moreover, the stereotype (and maybe the fact) that the French don’t possess a grasp as well as the Germans in practicing English, the language of business worldwide. Any operations thinking of heading to Paris must also consider that employees will have 8 more paid days of vacation leave compared to any operations based in Frankfurt.
Do the modern and performance-oriented image of Macron’s government and the reforms be enough to lure investors? An interesting question that should be answered in the coming months.
What about the other competitors?
Dublin, Luxembourg, Madrid, and Amsterdam. All these European provinces also have their attractiveness to the finance sector. Luxembourg is even better ranked on the Global Financial Centres Index. The city is an important player as it is the current second financial place in Europe. The multilingual city that has experience in finance and has already successfully attracted banks such as Citigroup could be a significant competitor. Dublin can also be quoted. Peter Beardshaw, a managing director at Accenture UK, said that Dublin is attractive “due to language, proximity to UK and relationships with the regulator”
Is London out of the bout?
The answer simply is no. If the negotiations are swift and Brexit is ‘soft’ which means that the future laws are not too rigid, London could remain its first financial centre status and simply minimise the affect Brexit has on the city.
To finish on this financial battle, the French politician Bruno Le Maire said ‘Many banks, many investors, should be aware that France is changing. Tomorrow, France will be the place to be. Not just for Mr. Neymar, but for all investors.” So maybe, Paris will be as attractive as Paris St Germain is for footballers. But for now, negotiations are still in progress and answers will be delivered soon.
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Written by Louiz Domoustchieva│Independent stock analyst
Edited by Graham Laxton & Vee Venski
This article is not a promotion of financial investment. Investing money in financial instruments is risk-reward process. Losses and gains are part of financial investment process. Only invest money you can afford to lose.