Last month, the City of London’s Brexit envoy, Jeremy Browne, said France is planning to use Brexit to “actively disrupt and destroy” the City’s financial services industry, even if France gains nothing in return.
France, Browne reported, is extremely confident after Emmanuel Macron’s rise to the Presidency, and sees the City as a rival rather than a partner. As a result, they hope to limit the City’s access to EU financial markets after Brexit, in the hope Paris might benefit.
The French Government’s actions appear to bear this out. France intends to cut its corporate tax rate from 33.3% to 25% and establish special English-language courts to deal with financial contracts, while President Macron has long been explicit about his desire to attract banks away from London.
Macron campaign e-mails which were released by Wikileaks last week, however, suggest there are limits to his ambitions for France – especially on defence. Macron adviser Hervé Grandjean said Britain remained “the most important and the most active country in the field of defence” while aides François Heisbourg and Clement Beaune slammed EU defence plans as “overly ambitious” suggesting bilateral military ties with Britain could be a tempting alternative.
Clearly, therefore, Macron realises he will continue to need Britain as a key partner after Brexit – at least in one field. This once again justifies Prime Minister Theresa May’s decision to stress British military collaboration with the EU in her Article 50 letter. Defence is a major British strength, and May should not be shy to mention this in the negotiations.
No issue exists in isolation, and Macron surely cannot expect Britain to accept his vindictive attempts to damage the City of London, while expecting us to continue to work with him on all other matters, as if everything is normal. Britain and France have strong ties on defence and other issues, and it is in France’s interests to maintain this relationship and not become hostile.
Not that Macron would be able to replace, or even damage, the City of London. London is the world’s leading financial centre, according to Z/Yen’s Global Financial Centres Index. Paris ranks just 29th. In continental Europe alone, it lags behind Zurich (11th), Geneva (20th) and the pre-eminent financial centre in the remaining EU, Frankfurt (23rd).
The City of London’s position compared to other financial centres in Europe, let alone the EU, is so strong any move from Macron to limit its access to European markets would be futile and destructive. Macron and his allies need to ask themselves which one needs access to the other more – the City, or the EU’s financial services industry? They may not like the answer.
London has the infrastructure, developed over decades, to maintain a world-class financial services industry. Though Macron appears to think otherwise, it is about more than just Single Market membership and tax rates. It is worth noting, however, how Macron’s promised 25% corporate tax rate will surely struggle to attract companies away from Britain, which will have a 17% rate by 2020.
It is about having the right legal system, the right regulators, the right regulations, and even the sheer gravitational pull of already having such a large industry. London has this, and Paris, quite simply, does not. It takes a long-term commitment to pro-market policies to achieve this – not the handful of gimmicks President Macron is proposing.
If anything, the future looks bright for the City. London is emerging as a world leader in fintech, for example. Meanwhile, the possibility of financial services being included in post-Brexit free trade deals is another great opportunity. A deal between the UK and USA, bringing together the great financial centres of London and New York, would be particularly good news
All the while, the EU is turning against financial services. While attempting to lure British financial services to Paris, Macron – staying true to his left-wing roots – is advocating for an EU-wide financial transactions tax. This will, needless to say, damage the EU’s financial services industry.
Macron’s attitude is typical of anti-market Euro-enthusiasts. They wrongly see European integration as a magic bullet, the be-all and end-all which will determine the fate of financial services after Brexit. Macron’s team must apply to financial services the same reasonable approach they are taking to defence. As we Get Britain Out of the EU, co-operation, and an openness to free trade and markets, is what will work for the best interests of both sides.