Daily Management Review

EU cities are fighting for the financial center's title


07/01/2016


The first news about results of the UK’s voting on leaving the EU made London’s future as one of the world's major financial centers foggy. Officials from Paris, Frankfurt and Dublin, meanwhile, decided to reduce the British capital’s influence on the European financial sector.



The day after the vote, the Irish Foreign Investment Agency has sent a reminder to investors that the country is an integral part of the European Union, and offered assistance in moving. Frankfurt began to prepare for a serious influx of defectors, and even opened a special hotline for banks that want to change their financial transactions. Specialists from Paris Europlace are planning to come to London in the near future to hold talks with the financial community’s representatives. In turn, French government agency Business France published a brochure explaining benefits of living and working in Paris.

According to Europlace’s General Secretary Alain Pithon, Parisian financiers do not want to play on someone else's grief, but to squander this great opportunity would be impossible in any case. 

Financial settlement of Brexit is now one of the most problematic issues for London. Stakes are higher than ever since the financial sector accounted for about 12% of the total UK’s output in 2014. About 2.2 million people were working in the country's financial sector, of which almost 700 thousand worked directly in London.

Faced with such a large-scale competition, British financiers have begun to try to remedy the situation. Chris Cummings, Executive Director of TheCityUK lobby group said that investors have always been rivals, only it was of a fairly placid character before.

Within a week, nearly two dozen heads of banks have decided to gather at the Association of British banks’ headquarters to discuss the situation. A strong influence must be brought to bear on the government to retain the UK within the EU’s financial ecosphere. In this case, the banks would be able to stay in London, said a source close to the situation.

The question whether Britain will keep the right to trade in financial services is crucial now. Its addressing, however, may take several years. Process of negotiations on the United Kingdom's exit from the EU structure will begin no earlier than in autumn 2016, but the financial institutions clients now want to be safe, so as not to suffer from possible disruptions.

Taxation, labor laws, and cost of living - those factors will be taken into account when deciding on options for moving financial companies from London. Before the Brexit vote, the United Kingdom was considered to be an ideal place to do business. The country provided lower rates of taxes and flexible labor legislation, in contrast, for example, to France or Germany.

France

French law is quite strict when it comes to an employee’s dismissal, ensuring a serious amount as severance pay. Efforts to mitigate the laws have failed. However, French officials are now talking about possibility of introducing tax incentives for those who want to move from London to Paris. Lobbyists of the financial sector have already initiated talks about reducing tax deductions to attract European banks.

Ireland

Ireland is going to compete with the United Kingdom, providing a reduced rate of income tax in the amount of 12.5%.

Germany

Representatives from Germany have not yet offered preferences for those wishing to move from London to Frankfurt. 

source: wsj.com






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