Written by John Keiger
This article was first published in ’Briefings for Britain’. We republish with their kind permission.
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Looming behind the Frost-Barnier negotiations now underway is a battle between London and Paris as financial centres. After failing in the first instance to seduce City firms to Paris, the French will now attempt to do so by force under the cover of the EU negotiations. However, even the French know that this maximalist position will be hard to sustain.
After the June 2016 referendum the French failed miserably to seduce City institutions to Paris. There was no exodus from London and of those few relocations to the continent, most avoided Paris, preferring to scatter widely from Dublin to Frankfurt and Amsterdam. Now the strategy of Macron and his ambitious Finance Minister, Bruno Le Maire, will be to ensure that the EU does not recognise passporting for British banks, that Euro-denominated transactions are no longer cleared in London, and that a system of regulatory equivalences with the UK is as bare as possible. The lever for this will be the European Banking Authority, now relocated from London to Paris, around which the French will hope to cluster ex-London institutions. However, even the French know that this maximalist position will be hard to sustain given London’s financial ecology, its firepower and importantly Paris’s drawbacks. A number of highly detailed French Senate reports into Brexit in the last couple of years spell this out.
“The US innovates, the Chinese copy and Europe regulates.” So quipped the former president of Italy’s CBI. But she overlooked the source of Europe’s regulatory urge: France. In the name of universalism and equality the French have long attempted to regulate everything. Hardly surprising then that a 2017 French Senate report on Brexit devotes a whole section to the regulatory handicap confronting Paris in wishing to attract business from London. The internationalisation of Paris as a financial centre, it states starkly, is penalised by the unsuitability of its fiscal, social and regulatory environment. It cites as an example the ever-changing nature of French legislation, especially French tax legislation, 20% of which changes every year.
In his evidence to the Senate hearings on 8 February 2017 the head of the Swiss bank UBS – which has 6,000 London employees and 300 in Paris – detailed the handicap for Paris-based firms in this complex regulatory environment. French banking practice’s inflexibility meant that making an employee redundant ‘takes three days in London, three months in Switzerland and three years in Paris’. He explained that Brexit will only affect investment banking, which is a mere 10% of staff numbers.
The President of HSBC France told the committee on 15 February 2017 that making an employee redundant in Paris in financial services cost three years’ salary to one in London. Decisions to relocate, according to the UBS boss, will be driven principally by the French domestic situation. Though Macron’s labour reforms have attempted to alleviate the rigidity of France’s employment laws they have only scratched the surface.
It is not merely French handicaps in financial services that help British negotiations. Britain has strong cards to play in financial services negotiations, according to the rapporteur general of the French Senate Brexit committee, Alberic de Montgolfier. He warned on the question of Europe withdrawing passporting rights from British financial institutions, for those rights work both ways. Not only would the large French banking sector suffer from not having access to the world’s second largest financial centre (119 French firms have a London passport), but so too would French insurers who, according to Montgolfier, have more to lose from not having access to the London market than the reverse.
The French Senate is also reserved on the question of the relocation of Euro-denominated clearing to the European continent from London. The Senate’s rapporteur général on strategy for the Paris financial centre post-Brexit was sceptical about the prospects of relocation, certainly in the short term. The problem was the business’s integration into the much broader London financial eco-system, the scale of London versus the continent and the fragmentation effect when relocated to the Euro area with an impact, for instance, on margin calls for companies.
France sees in the Brexit negotiations a once in a life-time opportunity to restore Paris to its pre-First World War status as Europe’s banker. It will be played as a zero-sum game where London must lose for Paris to gain. But the struggle will be fierce. The French Senate report noted that during a working visit to the City they had learned that eight or nine EU states were so dependent on British financial institutions that they would oppose the lifting of British passporting. In the French Senate’s latest hearings on 19 February 2020 it is the possible fracturing of the EU 27’s unity that is a clear concern, not just on finance, but all issues in the negotiations. As several senators warned, it will be difficult to get a comprehensive agreement ‘without the unity of the 27 cracking. The French have an interest in defending fishing, Germany cars.’
The Senate report rather incautiously revealed that according to recent testimony of the Director General of the French Treasury, equivalences will be granted to British financial institutions in certain sectors but that they will be ‘revisable and revocable as soon as Britain shows any ambition to diverge’. Similarly, the President of the Senate European Affairs committee, Jean Bizet, insisted that it was important to get European norms into any agreement. ‘For whoever controls norms also controls the market!’ he announced triumphantly.
The battle will be hard and long.
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Professor John Keiger is a former Director of Research at the Department of Politics and International Studies at the University of Cambridge, and a leading specialist in French foreign policy.
I know this it not related but this needs pushing
https://petition.parliament.uk/petitions/300239
Release the Home Office’s Grooming Gang Review in full
The Government is refusing to release official research on the characteristics of grooming gangs, claiming it is not in the “public interest”.
We, the British public, demand the release of the official research on grooming gangs undertaken by the Government in full.
THE FRENCH HAVE A HIGHER EVALUATION OF THEMSELVES THAN FACTS CAN BACK UP ! – This is normal and we should be used to it by now. – My hope is that PM Johnson will deal with the EU, rather than France. – If he does that there is maybe a 10% chance of an acceptable deal, but if France is listened to, the chance will be zero ! ….. I am still amused by De Gaulle’s speech upon giving an honour to Sir Winston Churchill. – ”France owes GB a debt that it will never be able to repay.” ! – Note well, this was said by Mr France, and not by today’s pip-squeak !
The EU negotiators are fully aware that protecting the interests of the City of London is the soft underbelly of the Tory party and thus the EU will play it for all it is worth. Lets us hope that the Tories do not engage in horsetrading with the interests of other industries to hurry through a trade deal like they shamefully did with our fishing and manufacturing base to expedite entry into the Common Market.
‘the French have long attempted to regulate everything’ – one of the things we will have to emphasise is the re-education of planners and civil servants to wean them off the over-regulatory history of our involvement with the EU. We are very different culturally to the continentals – especially the French. Our unregulated way of doing things enables and encourages innovation whereas the over regulated French/Continental/Napoleonic way stifles that very innovation. I understand that continental law is Napoleonic which starts from the basis that unless anything is permitted by law it is not permitted while English law assumes everything is permitted unless it is specifically not permitted by law or custom. We must return to an unregulating mentality to free our innovating culture to blossom again.
Stanley, I do believe your comment goes to the very heart of the divide between Britain (and the whole Anglosphere) and the French (which in this matter means the EU as well). This is why there cannot be and never could have been, a compromise between the two. It would be like mixing oil and water. We’ve had such a lucky escape from being on the path to something closely resembling the old Soviet Union.
English common law is in principle along the same lines as Roman civil law, i.e. it works by precedent. (I’m speaking as an engineer here. I’m sure a lawyer could put this better.) In other words it is literally thousands of years in the making. It decentralises decision making (limited opportunity for corruption, so not very EU friendly) and the system is self-correcting.
One need look no further than the Bible, and how even-handedly the Romans dealt with the Jews and their (as they would have seen it then) wayward cleric to realise that over all this time not much has changed.
Very interesting points there Stanley and Michael. Yes EU law is based on Napoleonic Law which clashes with our much older Legal System. But I had not heard before that English Law originated from Roman Law, though your arguments about precedent and decentralisation are very persuasive and certainly a good foundation for ‘running things’.
You are also quite correct in what you say about the Roman’s view of religious quarrels in their subject nations.
So there we are the Romans had good underfloor heating which we still do not have. Roads without constantly reappearing potholes AND a good legal system. Will Human Beings never learn ?