The following op-ed by Blackstone’s John Studzinski ran in the Financial Times.
The way things are looking, the City of London could be damned if the UK leaves the EU and damned a good deal sooner if it does not.
In the six weeks since David Cameron, the prime minister, promised a referendum on EU membership, we have been painfully aware an exit could inflict serious damage on financial services in the UK. Now the City, a magnet for global talent, is under fire from the EU itself with the move to cap bankers’ bonuses.
Immediate action is essential: the financial services industry drives 10 per cent of UK gross domestic product. Yet Mr Cameron and George Osborne, the chancellor of the exchequer – both intellectually and politically astute – have been caught on the back foot by Brussels’ latest blatant attempt at interventionism. They have no choice but to assert – and maybe redefine – the strategic importance of the City.
In recent years, senior British politicians have, for understandable reasons, felt obliged to condemn certain aspects of the Square Mile’s behaviour. Now they need to stand up for it and take a rigorous lead on shaping scenarios and options for the City’s survival. They still (just) have time to do so but need to move fast. That survival is imperative, whether the UK is inside or outside the EU.
If there is a referendum, both government and voters must be on the front foot, steeled for any further surprises and making positive, well-informed decisions – not retrenching in a belated attempt at damage limitation. The arrival from Canada of Mark Carney as Bank of England governor will bring a welcome global perspective to a critical situation.
We should also take reassurance from the reasons for the City’s long-established primacy as a global crossroads of capital. More than just a European hub, it benefits from a location that allows it to do business with Asia in the morning and the Americas in the afternoon. Frankfurt and, increasingly, Zurich contend for its position – the latter unstifled by any EU attempts to limit personal rewards – but neither can ever aspire to London’s Weltstadt status.
History has given London deep ties across the globe; English is the world’s lingua franca. The City’s institutions, despite recent wobbles, remain entrenched around the world, not least in key emerging markets.
Talent currently flocks to London, not just for its career opportunities and the quality of its professional infrastructure. The human factor should not be underestimated. The City, which employs 300,000 people, has played a vital role in making London the ultimate cosmopolitan environment: vibrant, pragmatic and open-minded with a wealth of housing options, excellent schools, a rich cultural and artistic life and efficient connections to the rest of the world. Not for nothing do London and the UK lead European tables for foreign direct investment.
We can also take encouragement from HSBC’s decision to keep its global headquarters in London, for the moment at least. While Brussels might continue to throw challenges at the City, the UK government must keep it firmly rooted as the central point of the global capital flow axis between Hong Kong and New York.
An EU exit, inevitably fraught with complexities that merit serious and urgent consideration, would be conditional upon the agreement of all member states. Negotiations would be long and hard. A Norway-style associate membership of the European Economic Area would not be a given. To maintain an influx of talent, a non-EU Britain would need to implement clear protocols on passporting. It could draw inspiration from the basic US principle of providing work visas to individuals of proven commercial and industrial merit – and of paying them on a meritocratic basis, in accordance with corporate governance, not draconian cross-border decrees.
Within Europe, the dynamics are changing and the UK must ensure it is at the forefront, maintaining or ideally strengthening its negotiating position. The broader implications of the rise in populism in France and Italy, north-south economic disparity, and increasingly flawed EU democratic processes (now a source of discomfort for Germany) need to be taken seriously by the UK government and the City.
As national and EU-wide uncertainty proliferates, the inherent ambiguity of the UK’s European position – it has never been “properly” European like France or Germany – could become still more marked. More than ever, Mr Cameron and Mr Osborne, for pragmatic or tactical reasons, must consider invoking the EU’s “Luxembourg compromise”, designed to accommodate “very important interests of one or more partners”.
The City is of the utmost importance to the UK’s future, and it must start actively working with politicians to guarantee its position. Resourcefulness, adaptation and good old British pragmatism are part of successful survival – but so are foresight, careful planning and, when necessary, a sense of urgency.
An exceptionally precious jewel in the country’s crown for centuries, the City of London – like that other great British institution, the House of Windsor – has been through some recent travails, and the next decade is unlikely to be easy. But, again like the Royal Family, long may it reign.
The writer is a senior managing director of The Blackstone Group