“London is in a global race and Europe isn’t even in the race — so for the rest of Europe, the message is ‘Butt out!’”
By Denise Marray/Gulf Times Correspondent/London
The chief economist of the Institute of Directors, James Sproule, gave his reaction yesterday to London losing its poll position as the world’s leading financial centre to New York, according to the Z/Yen Global Financial Centres Index report.
He pointed the finger of blame squarely at Europe’s door — seeing their meddling as unhelpful to London. Specifically, he cited the capping of bankers’ bonuses and the introduction of the Tobin tax (brainchild of the Nobel-prize winning American economist James Tobin) as problematic. Tobin’s aim was to curb large scale and destabilising movements of funds between foreign currency exchanges. The idea has since been extended to cover a tax on all share, bond and currency transactions.
Eleven EU member countries have said they wish to move ahead with introducing such a financial transactions tax.
The nations — which include France and Germany — intend to use the tax to help raise funds to tackle the debt crisis.
The tax has the backing of the European Commission. The other countries that wish to introduce it are Italy, Spain, Austria, Belgium, Greece, Portugal, Slovakia, Slovenia and Estonia.
But the tax is opposed by other nations, such as the UK, where the government feels it would damage the City of London. The US has also expressed its opposition to the idea.
“London is in a global race and Europe isn’t even in the race — so for the rest of Europe, the message is ‘Butt out!’” he said.
He takes a dim view of the role of Brussels. “There’s clearly no love of financial services coming out of Brussels. They don’t understand it and they don’t like it. So my message is: ‘Stop trying to set rules and regulations. We’re having to fight hard to maintain our position and you are not helping’,” he said.
With regard to the EU directive to cap bankers’ bonuses, he said: “You should want bank employees to have a bigger stake in the business and you have just stopped them from having that. Realise how dumb that is in the context of what you are trying to do in the long term.”
The 28-country bloc introduced the cap rule after a public backlash over high pay at banks, many of which were bailed out by taxpayers in the 2007-09 financial meltdown.
The rule aims to limit a bonus to no more than the fixed salary, or twice that level if approved by the bank’s shareholders.
Britain is challenging the bonus cap in the EU’s top court, arguing the rule will make it harder for lenders to cut costs when required because it encourages a higher level of fixed pay, whereas bonuses afford greater flexibility as they can be more easily cut or withdrawn.
Sproule observed that while there is almost nothing to separate London from New York as the world’s leading financial centre, the psychological aspect around who is perceived as number one does have an impact. In that respect, he would like London to have more support from Europe because in the current climate he said: “I think there is bad mood music — it sets the wrong tone”.
Qatar receptive to concerns of financial services industry
By Denise Marray/Gulf Times Correspondent/London
Mark Yeandle, author of the Global Financial Centres Index, speaking to the Gulf Times on Monday, said Qatar is perceived as a stable financial centre.
“People in financial services generally don’t like surprises, particularly related to sudden changes in tax policies. They believe that Qatar is stable and that the authorities will take notice of the concerns of the financial services industry and won’t spring surprises,” he said.
He noted that London in losing poll position as top financial centre to New York, albeit only by a very small margin, had been affected by a series of negative issues and that these, more than any proactive steps taken by New York, accounted for the drop in placing.
“There is uncertainty over whether the UK remains in Europe and over Scottish independence. There are also concerns over regulatory pressures from the EU and also over the UK’s own regulatory system which has not been terribly effective,” he said.
He also pointed to the negative impact of the Libor scandal and the London Whale (The trader known as the London Whale lost more than $6.2bn for JPMorgan Chase & Co).
“All of these matters have been around for a while but they have a drip drip effect,” he observed. “A lot of people are running scared of Europe at the moment because the euro crisis still rumbles on in the background, and Qatar and Dubai are benefitting from that,” he said.
He also pointed out that whereas two years ago the difference between London and New York and Hong Kong and Singapore (third and fourth ranked respectively) was about 100 points — that has been shaved down today to just 30 points. That told of a big success story for Asia, he said.