Friday, July 5, 2013

Financial Services: A British, German and European Asset

Building alliances is a necessary part of economic diplomacy.  It is good to see it being done.

Gerry Grimstone, Chairman of TheCityUK, yesterday spoke at a gathering of key industry figures in Frankfurt, Germany last night. Below is his full speech. 

Framing Policy in Facts
In my experience, perceptions matter.  When they are powerful, they can be used to frame policies, even when facts say otherwise. Let’s start with motor manufacturing and my own area, financial and related professional services. Both industries are reliant on the other for their success. Manufactures require insurance, legal security, trade finance, price stability and investment to sell their products. My industry supplies those services and competes to do so in the most cost efficient, client-friendly way. We are interdependent parts of the supply chain.

However, ask the average European politician which country in the EU employs the most people in financial services and they would probably think of the City of London and then say, “Britain”. Ask them to name an EU country that exports more than 80% of the cars it manufactures. They would probably think of the great names in the industry and answer, “Germany”*.

However, the UK is also a major car exporter, exporting more as percentage of its industry than even Germany. Germany, as you will know already, is the leading EU financial services employer. Germany employs more than two million people in financial and related professional services. The vibrant German financial centres are led by Frankfurt with its 76,000 workers. The sector has generated for Germany the third largest national trade surplus in the EU, between €6 billion and €8 billion per year. This explains why TheCityUK, the British-based sector champion, sees Germany as an invaluable partner in promoting our sector as a European asset.

“The City” is a European Asset
TheCityUK is clear that “The City of London” is a European asset as well as the world’s leading financial centre. Both the UK and EU can benefit from the UK’s membership of the Single Market. It is a message for both policymakers in the UK and the EU. We are also clear that we have a role in our country’s referendum debate. The four themes we have are: 
  • The UK economy benefits from the country’s participation in the Single Market.
  • The UK should take a leading role working with EU partners to reform the European Union. 
  • We need financial regulation that serves the interests of the ‘real economy’.
  • We firmly believe in the UK’s future as a European financial centre, within the EU, open to the world.
We appreciate the UK’s role as a leading financial centre relies significantly on access to the Single Market. This gives British businesses, and international businesses that select London as their European headquarters, access to the world’s largest market with 500 million people. 

The UK in turn helps to create economic growth across the EU. Roughly half of all European headquarters of non-EU firms are based in Britain. The London Market is Europe’s, and the world’s, leading market for internationally traded insurance and reinsurance. The amount of lending outstanding from banks in the UK to recipients in other EU countries totalled over €2 trillion at the end of 2012; UK deposits sourced from EU countries totalled €1.8 trillion.

The UK is also well placed to revolutionise the diversity and resilience of Europe’s financial sector and the scope of its capital markets. As an important source of funding for corporates across the EU, “the City” is a European resource and not just a London location.

Partners for an Open, Reformed, Market-Friendly EU
Germany is already a key ally of the UK on a number of EU issues. They include the future of the EU Budget, where Germany and the UK called for a cut in February 2013, and the development of the Single Market. The German government shares the concern that there might be a fracture between the eurozone and the wider EU.

We emphasise the centrality of the Single Market to the thinking of UK-based businesses. But while wholesale financial markets in the EU are largely integrated, there are still significant barriers to the provision of financial and related professional services. One example is in the area of insurance, which remains highly fragmented across the EU; a house or car in the United Kingdom cannot be insured from France. Completing the Single Market in services is an economic priority. The elimination of all remaining barriers to trade inside the EU would increase GDP, largely based on growth in output of services. As part of this agenda, we also welcome the German call for greater co-ordination on the recognition of academic degrees and professional qualifications. This is a way of deepening the pool of talent available to European employers.

Crucially, we both look across the Atlantic to the largest national market in the world.  Germany supports the Transatlantic Trade & Investment Partnership, saying that it can underpin the long lasting strategic partnership between Europe and America. The Foreign Minister’s call for, “a speedy and transparent negotiating process,” is being put to the test right now.

Doing More, Doing it Better
Since our foundation three years ago, we have enjoyed many events and shared platforms with German policymakers, officials and regulators in London.  But that is not enough. Today we are in Frankfurt to enhance that dialogue and to identify potential areas of cooperation, especially where our common membership of the European Union provides a shared agenda.

Our visit comes as Germany prepares for federal elections in September. Key deliberations are also underway on the future structure of financial supervision in the EU. The final decisions on the supervisory and resolution phases of banking union will be influenced greatly by policymakers from Germany.

TheCityUK is here to offer our views without the use of a megaphone. We know that the UK and Germany have a joint interest in calibrating financial regulation and tax policy to support the European recovery. We know that the UK and Germany both understand the urgency of the competitiveness agenda, how financial regulation needs to enhance Europe’s international competitiveness and support growth in the European economy. We want to explain how the EU with its Single Market is a business necessity, not an optional extra. We also want to look ahead. To find ways of making the EU a better entity for business: reforms that enable markets to open and enterprises to prosper.

Across the EU, financial and related professional services firms employ 11 million people. The sector is an asset for the UK, for Germany, and for Europe. It is up to us to ensure that:
  • the value of the sector is understood;
  • the opportunities for its growth are gained; and
  • the services it offers reach more people and businesses than ever before.

*  German car exports 2012 -  76% total - UK car exports 2012 – 83% total