German cities have their eyes on London, hoping to reduce its lead role as Europe’s largest financial center. France would like to do the same.
However, work rules make it much harder for companies to shed employees in Germany and France than in the UK.
A second problem is the likelihood of a financial transaction tax that Germany and France have desired for years. With the UK out of the way, will the EU plow ahead with a tax?
Targeting London
Please consider Frankfurt Vies for UK Banking Jobs Post-Brexit.
Germany is considering changing its labour laws to make Frankfurt a more attractive hub for banks looking to move staff out of London after Brexit, in the latest attempt by EU countries to woo financial institutions from Britain.
People briefed on the plan said Germany was looking at imposing an upper salary limit on employee protections of €100,000 or €150,000, which would make conditions such as redundancy terms less generous. “Labour law wasn’t designed for people like this,” one person with knowledge of the situation said.
However, the proposal comes as leading Wall Street banks indicated this weekend that they were more likely to relocate certain operations to New York than the eurozone if they shifted them from London. James Gorman, chief executive of Morgan Stanley, said that although the bank was looking at whether it needed a new headquarters in the eurozone, he thought “the big winner is going to be New York”.
One of Germany’s main drawbacks as an international financial centre, often cited by bank bosses, relates to labour laws that make lay-offs difficult and costly. Minimum statutory redundancy terms, for example, are twice as generous in Germany as in the UK. That is a particular issue for banks, which tend to hire and fire more readily than other sectors, in line with cyclical business fortunes.
Germany, like France, has other labour restrictions, including special protection for older workers and those with families. One employment lawyer said a senior banker earning $1.5m in total remuneration could typically be made redundant with a payout of $150,000 in London, but the cost could currently be 10 or 15 times that in Frankfurt.
If Germany presses ahead with the reform idea, it could confirm Frankfurt as the natural choice for City of London employers looking to shift jobs to another European location and safeguard access to the single market once Britain has left the EU.
Fresh data compiled by the Financial Times show that, London aside, Frankfurt is by far the dominant EU location for bank operations. Seven of the 10 global banks whose European operations were analysed by the FT had a subsidiary in the German financial hub, ahead of Luxembourg with five, and Paris and Dublin with four apiece.
Spotlight on Financial Transaction Taxes
Bloomberg reports EU Sagas of Greece, Transaction Tax Back in Focus.
Two European Union financial sagas return to the spotlight this week. One is Greece. The other is the financial transaction tax being pursued by 10 EU governments.
During much of last year, it would have been reasonable to bet that the FTT initiative had a better chance of succeeding than Europe’s efforts over half a decade to keep Greece in the euro area. Concerns about the health of Deutsche Bank AG and other European lenders add to the reasons why that’s no longer the case — and just how far the tables have turned will be on display when EU finance ministers gather in Luxembourg on Oct. 10-11.
Euro-area finance chiefs will decide on Monday whether Greece, in its third international rescue program since 2010, qualifies for another disbursement of aid. At stake is a 2.8 billion-euro ($3.1 billion) payout tied to Greek overhauls in areas in such as pensions, bank governance and the energy market.
The signal from numerous European officials including EU Economy Commissioner Pierre Moscovici is that the Greek government of Prime Minister Alexis Tsipras has done enough to win the transfer, which is what remains of a 10.3 billion-euro tranche that euro finance ministers approved in principle in late May.
The FTT saga is almost as old as the Greek crisis. Forged in the wake of the 2008 financial crisis, it took concrete form in 2011 with a commission plan for levies on stock, bond, derivative and other trading as a way to curb financial speculation and get the industry to make a “fair contribution” — projected at 57 billion euros a year — to state budgets.
The proposal failed the following year to garner the needed unanimous support of EU governments and was revived in late 2012 by a smaller group of national capitals under European “enhanced cooperation” rules that require the participation of at least nine member states.
Austrian Finance Minister Hans Joerg Schelling has pledged to step down as leader of the FTT group should no decision be reached this week.
Few EU initiatives ever really get killed; they simply get shelved until the political winds change. The FTT plan may be a rare exception.
Poisoned Atmosphere
The EU never gives up on nannycrat ideas and the Financial Transaction Tax (FTT) will be no exception.
Over time, the EU always seeks more tax hikes to fund pet projects. So even if they temporarily shelve the FTT idea, it will return.
As for Frankfurt supplanting London, I rather doubt it. Even if Germany does loosen its work rules, it may get as many howls from France as the UK.
The nannycrats want common work rules, a common currency, a common army (huge taxes will be needed to support that idea), common wages, etc. If Germany cuts taxes or changes work rules making Germany even more competitive than France, expect France to scream.
Finally, the UK has measures it can take to lure business, notably lower its corporate tax rate further.
Regardless of what happens, add this discussion to the already poisoned atmosphere heading into the Article 50 Brexit negotiations.
The odds of a very destructive trade war between the UK and the EU are high and rising.
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Mike “Mish” Shedlock
Umm. I think you mean Frankfurt. Frankfort is in Kentucky.
Thanks fixed
Money never sleeps, in fact, is wide-awake 24-7. Why would any bank choose cultural backwaters such as Paris or (yipes!) Frankfurt over London. Neither site has been the international entrepot that London has been since the 1600s. Neither has the cumulative experience of London. Neither has the insularity that the City of London has enjoyed from earliest times. Neither has remained free of an occupying army for over a thousand years. While there may be competition between France and Germany over where to locate a regional banking center, there’s no way either will ever satisfy the needs of a world banking center.
Anyway, what about Zurich? I hear that Switzerland has had a bit of banking experience.
Switzerland isn’t in the EU.
Besides, who can trust a country named after mediocre football coach Barry Switzer?
If an .837 win percentage reflects mediocrity, I’d sure like to know what a good coach might have accomplished over 15 years at OU.
Frankfurt wins easily
EU’s chances of supplanting London? Slim left town…..
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When Deutsch Bank goes down, whether it’s bailed in or bailed out or goes the way of Bear Stearns, Germany is not going to be regarded as good place to do banking.
The financial center of the world is moving from west to east. It is just a matter of time and the phase of cycles.
You would have to be insane to move your company or work in France. This went largely unnoticed but on Sept 29 the french parliament adopted a law called Sapin 2 which allows the government to suspend withdrawals from all “life insurance” accounts. What the french call “life insurance” (assurance vie) are the equivalent of the US 401(K) and IRAs.
This law effectively allows the french government to “freeze” withdrawals from all french 401(K) / IRAs savings account whenever it wants and for whatever length of time it pleases… Sweet dreams…
I talked to my cousin who works for one of the big 5 banks in Canada in September about how Brexit was going to affect them.
He told me it was going to cause a lot of upheaval because in order to do banking business in the EU you had to maintain a presence there. Up until now that meant London not only for the cheaper costs but also due to language barriers for Canadian/US banks. Now the higher ups were scrambling to figure out if / when they would have to move their European HQ to another Euro country.
I would think Dublin would make a play to convince banks to headquarter there due to lower taxes and no language barriers.
Not necessarily. It’s quite complicated but all they may need is a brass plaque in Dublin or Luxembourg. Below is just one element. There are others. The whole thing becomes confusing quite quickly and really depends if you want to service the domestic EU market specifically.
http://www.thecityforbritain.org.uk/2016/06/passporting-equivalence-and-citys.html
There are quite a few resources to read up on. If JP Morgan can decamp to NYC and service Europe then why can’t they stop in London and service Europe?
Looking on the bright side, if there is one, it will bring down office costs in London and help some of the smaller players. After leaving the EU the UK would be well advised to assist Fintech and challenger banks so we grown our own rather than relying on foreign plantations. It is possible, we have the skills and the contacts. Just needs the will to do it. Profit motive will sort that out if people are allowed to keep more of what they earn.
Expect the EU to change rules and regulations to spite UK after Brexit. They are very vindictive
If the UK stayed the City of London would have been used as a cash cow and under QMV (qualified majority voting) there would have been little UK could do to protect it. No other state has such a reliance on financial services, UK would be out voted in trying to protect it when everyone else would see increased income by supporting FTT and other regulations at no cost to them.
There’s a very long story to all this. London will lose some but not all.
Operations out of NYC are likely to benefit. France would need a major change in culture.
If it’s OK to service Europe out of NYC then why not London?
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Lloyds Insurance is likely to ship out of London.
A number of fund managers actively campaigned to leave the EU.
Banks and large insurance were not amongst them.
Increased costs will be borne by customers. No matter how they are spread increased costs usually equates to increased economic drag. Probably borne more by EU customers than UK and ROW.
The EU has turned itself into a fortress of protectionism. I’m not at all sure what that will mean during the next great leg down if China slows and the UK is very much weaker but if German exports tumble the EU will feel it.
Much of banking has become an elaborate means of putting newly printed money in banker pockets. Taking goods from their elders, for redistribution to bankers.
Much of banking has become an elaborate means of putting newly printed money in banker pockets. Confiscating goods from the average person, for redistribution to bankers.
This!
Japan was doing utterly splendid until Tokyo became a “financial center” in the mid 80s.
Germany has benefited enormously from having the leeches, that nowadays comprise 90% of that industry, shipped abroad, so better Gerans don’t have to deal with their pathetic nonsense on a daily basis.
A problem for Germany now, is that it has, itself, gotten so tangled up with the ECB and their nonsense, that its post war tradition of a simple, low inflation central bank policy; has one way or the other dragged financialization nonsense into a country that for a long time was blissfully spared it.
What being a “financial center” means in practice, is paying host to a group of parasites that obtains cheap (or free, or nowadays better than free…) money from the Central Bank. Them spends a share of that money to buy the government. Entrenching themselves behind bailouts, “accomodative monetary policy”, “too big too fail” Menckenian bogeymen etc., etc.
You have to know the truth about the City of London to understand how it works.
Eye opening.
https://youtu.be/eHnwtkfX2k4
In 2011 Michel Barnier held up documents suggesting EU would be first with BASELIII.
Now they push back massively, including Schauble, because of capital reserves needed. DB is the reason. It will fail BASELIII without increased capital.
Hypocritical? Without the rules applied how do they hope to convince investors European banks are safe but they need the investors. Rules only applied over there when they suit the project.
https://www.ft.com/content/a2da81ad-baef-3c76-97a0-86e4ea759c81
As a colleague of mine who moved to Frankfurt with some colleagues, but returned, said: “The most exciting thing in Frankfurt is the traffic lights changing! What’s the point of earning a load of money if you live in a town that’s dead!”
I don’t want to be complacent, but there’s a buzz about London that’s hard to find in Frankfurt. In fact, it doesn’t exist there.
Not to mention bonus caps!
Profit motive works wonders if people are allowed to keep more of what they earn. Beats croissants for breakfast or sauerkraut for lunch any day of the week.
I worked in France, no one wants to work in France.
I agree, NY will be the big winner. I just don’t really believe London will be a big loser. Too important and already developed.
Great simple summary, Germany runs a surplus and the show (hedgemony) without the massive transfers the project needs.
“Germany exercises hegemonic veto authority without paying the bills.” Ashoka Mody or Robert Keohane, apologies I’m not sure which.
Is this true? If so Germany is on the hook for 100’s billions and their tax payers probably don’t realise what is really going on.
http://www.lawyersforbritain.org/eu-deal-germany-cant-afford-hard-bargain.shtml
There fall of the pound is causing some stress already but there is validity in this article, it has been overly strong for some time.
http://www.telegraph.co.uk/business/2016/10/10/currency-guru-says-pound-slide-liberates-uk-from-malign-grip-of/
Germany is the only functioning economy in Europe (on the western side of the continent anyway). Its the only country with any savings (in aggregate). It has all the technology in Europe (tech as in building precision machinery, Europe doesn’t write code). The German people have finally decided they have had enough of Merkel’s anti-German / pro-Brussels stance.
Having said all that, Frankfurt has absolutely no chance of usurping London as a financial center unless Germany first leaves the EU. The EU is why London didn’t “lose” its status before Brexit. Frankfurt has a big airport in its favor, but it has the ECB working against it; everything else is against Frankfurt.
France is a failed state, using extortion tactics to prevent Goodyear from closing a disastrous tire manufacturing plant with one hand while promoting Michelin tires with the other hand. France will be lucky to avoid another revolution and splitting itself apart (whether or not the EU survives).
Its plausible that banks might diversify between Geneva and London — plausible but unlikely. Bank sales force needs an airport with lots of connecting flights, and any sales manager that picks Geneva over Heathrow will lose their job quickly.
I forgot to add that English is the international language of business, nicht deutche.
Corporate Germany defaults to English, language not the barrier.
Traders and salespeople do not live in corporate, they live in London (or would live in Frankfurt).
Did you think your snide comment thru Fish? Have you ever been to Frankfurt? Life is a lot more than just what language you speak at the office.
Everyone in my office speaks multiple languages on the phone with clients (and I do mean everyone). Who cares? If you want to attract the best employees, life outside the office counts too. Frankfurt will have trouble competing on taxes vs London; it will have trouble competing on law and regulations vs London. But on lifestyle outside the office?
Any sales manager worth dog poo knows attracting and retaining financial talent in Frankfurt vs London is going to be a very big issue.
I didn’t realize you needed that spelled out for you.
The conclusion of all this is end of several financial centers in the world (keep just NYC), power to decentralized fintechs and more even taxation of high incomes it appears.
It will bring more efficiency to the system.
About the table for relocation from FT, it is just US centered: where are Asian (mostly Chinese) banks, where is BNP paribas , etc …?