BREAKINGVIEWS-Financial centre crown no longer coveted

December 30, 2009

BREAKINGVIEWS-Financial centre crown no longer coveted

— The author is a Reuters Breakingviews columnist. The opinions expressed are her own —


By Margaret Doyle

LONDON, Dec 29 (Reuters Breakingviews) – Three years ago, New York authorities worried that London might steal its crown as world financial capital. That title now looks much less desirable.

Back then, cities and countries vied with each other to lure the jobs and glamour of this fast-growing industry. The tools included regulation, taxes, language, education and infrastructure. The traditional contestants — New York and London — fought for the top spot. New and old centres, from Frankfurt to Dubai and Singapore to Zug, Switzerland, vied for leadership in the second tier.

But even before the financial crisis, there were some doubts, especially in the UK. Finance produced lots of  high-paying jobs, but much of the money seemed to come at the expense of the rest of the nation. And while financial institutions accounted for a quarter of Britain’s corporation tax and also underpinned VAT and stamp duty receipts, sophisticated investment banks and hedge funds managed to minimise payments.

After the financial system led the world into recession, the City and its peers now elicit something more like a love-hate — or hate-love — relationship. Financial services still have glamour, high pay and can be a good source of export income, but they are clearly more dangerous than previously thought.

The UK put too many eggs in what proved to be a quite unstable basket. The direct financial bailout costs are not yet known, but the crisis has already tipped Britain into its longest post-war recession. Even on sunny Treasury forecasts, the economy will regain 2008 levels of output only in 2012.

Politicians have a great deal of influence on how and where finance will concentrate. Right now, voters are telling them not to care. When bankers complained that the new UK supertax on bonus pools would drive them away from London, the prospect was greeted with enthusiasm in many quarters.

Finance could yet regain some of its lustre. The industry does, after all, do something useful — gather and allocate capital, maintain liquid markets, spread risks. Skilled people are needed to do that. But financial professionals have to show they can generate jobs and taxes — but not much risk.


— In January 2007, Senator Charles Schumer and Michael Bloomberg, both of New York, warned that “in today’s ultra-competitive global marketplace, more and more nations are challenging our position as the world’s financial capital.” They warned that “All Americans have a vested interest in strengthening America’s financial services industry, and the time has come to rally support for this effort.”

— Since then, the mood has changed on both sides of the Atlantic thanks to the financial crisis. British finance minister Alistair Darling’s decision to levy a one-off 50 percent tax on bankers’ bonus pools has met with widespread approval. A Guardian/ICM poll showed that 71 percent of the public backed the move.



(Editing by Edward Hadas and David Evans)

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