Posted by: westlancashirerecord | June 21, 2016

We Are Coming For The Square Mile

A city editor writes “Brussels-Frankfurt resentment of the City of London’s rise is permanent, leave or remain merkelpoints.

“The Brexit vote was always going to be disruptive for financial markets so we should not be too surprised by the rally in the pound, FTSE 100 and overseas bonds markets as the latest polls show ‘Remain’ edging back into winning territory.

“We should never forget, however, that over the medium to long term a lower value for sterling is helpful to UK exporters and at a time of weak commodity prices does not represent a threat of imported inflation.

“To the contrary breaking the cycle of Japanese-style near-deflation might be positive. Paradoxically, the dangers of staying in are thrown up by a reported German threat to grab back clearing of euro-denominated foreign exchange trades if Britain seeks a divorce from Brussels. It was a challenge by the Chancellor George Osborne and the Treasury to the European Court of Justice which allowed London to retain this trade after Brussels sought to expunge it.

“The distrust of Anglo-Saxon capitalism on the Continent is a powerful force and there is deep resentment of the City’s rise and rise to be the world’s most important centre for foreign exchange and related derivatives trades and clearing. Just how little influence Britain has in seeking to preserve the Square Mile’s laissez-faire approach to finance, in the face of a 19-nation eurozone juggernaut dbank, is illustrated by two other post-crisis reforms challenged by Britain.

“The Treasury opposed the bonus cap on bankers of two times basic pay because of its distorting impact. It raises the fixed costs and capital requirements of banking, makes remuneration less flexible and puts Europe’s financial centres at a disadvantage to New York, Singapore et al. Similarly, the embryonic transactions tax, from which we are excluded for the moment, would hit London harder than any other centre.

“The lesson is that despite all the rhetoric, our own authorities, the Treasury and the Bank, have found that being inside the tent does not protect the City of London from mischief. Market-led uncertainty comes and goes. But Brussels-Frankfurt resentment of London’s hegemony in forex, cash share transactions, banking, hedge funds and all the rest is permanent, leave or remain”.

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