London is the world’s financial capital for currency and bond trading.
Large investment banks employ over 50,000 people in the City to advise global
investors. Financial centres outside of Europe could benefit if clients reduce the
amount of business they allocate to London because of high levels of political
and legal uncertainty.
This applies even more so as Europe’s financial centres
suffer from a number of disadvantages in terms of global competition. First, Wall
Street and Asian financial centres have significantly higher economies of scale
compared to their European counterparts. Daily OTC FX turnover shows the
small global market share held by financial centres in Europe.
Second, many European countries are in favour of restrictive financial market
regulations and introducing a financial transaction tax, and also have
corresponding disadvantages. Third, the inflexible labour markets, high tax rates
and social security charges in many eurozone countries serve as deterrent for
global investors. Fourth, macroeconomic imbalances in the eurozone remain
essentially unchanged and political divisions now appear greater than ever
Fifth, due to their high level of economic and asset growth, Asian
financial centres are, in any event, likely to become more important this century.
For this reason, Europe is at risk of only getting the crumbs from Brexit, while
the main beneficiaries are on other continents