It is becoming increasingly likely that the UK will have a referendum on whether to stay in the European Union. It’s not just that David Cameron, the prime minister, has promised to hold such a vote by 2017 assuming he is re-elected. The drumbeats from the opposition Labour Party that it too would hold a plebiscite are becoming louder. Opinion polls show that Britons would currently vote to quit.
Of the many industries that would be hurt by such a “Brexit”, the City of London is the most prominent. The damage would range from moderate to severe, depending on the extent of the amputation.
The City is not just the UK’s financial capital. It is also Europe’s financial capital and vies with New York to be the world’s financial capital. The UK accounts for 74 percent of the EU’s foreign-exchange trading and 40 percent of global trading in euros; 85 percent of the EU’s hedge-fund assets; 42 percent of its private-equity funds; and half of pension assets and international insurance premiums, according to a recent report by TheCityUK, which represents the UK’s financial services industry.
What’s more, 37 percent of the UK financial services industry’s trade surplus is with the rest of the EU; over 40 percent of foreign firms coming to the UK cite access to the EU’s single market as a core reason for doing so; and around 40 percent of the tax take from financial services is from international businesses operating in the UK.
It is fantasy to suggest that all this business would vanish if Britain quit the EU. But it is equally fantasy to suggest that the rules which constrain how the City operates would go in a puff of smoke in such a scenario.