Paris Unlikely To Replace London As Post-Brexit Financial Hub – Scholar

Radio Sputnik discussed this with Dr. Richard Wellings, deputy research director at the British think-tank the Institute of Economic Affairs.

Sputnik: In your view, will Paris manage to become a financial hub for bankers following Brexit?

Richard Wellings: Of course, Paris is already quite an important international financial hub, but I think it's very unlikely that it will become a major global city like London. The financial sector is a complex ecosystem and firms rely on other firms clustering close by. These things develop over many decades; you can't just take one financial center and move it somewhere else. A few firms may move, but we aren't going to get a huge cluster like we have in London.

Sputnik: Do you think London will hold its position?

Richard Wellings: A lot of it depends on the domestic policy adopted in the UK. Post-Brexit, there are actually opportunities for London to do well if the UK government decides to remove a lot of this hugely costly EU red tape that's holding the City of London back, but of course the real competition is not from Paris or Frankfurt, it's from some of these new centers developing in emerging markets; places like Singapore, Hong Kong and Shanghai, where you get very fast rates of economic growth.

It looks like now if it continues to share the EU's rulebook, then, of course, the potential for growth is a lot less.

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Sputnik: President Macron has already introduced measures to make France more attractive for the financial industry. However, this has led to criticism from the French people. What reaction can we expect from this now?

Richard Wellings: He's facing a huge problem, of course. France has a long tradition of hostility to the financial sector and that's one reason why I think firms will be loath to relocate there in the long term, because of course Macron might be more or less in favor of a strong financial sector but it doesn't mean that the next French administration will feel the same way.

There are huge long-term political risks in France. And also the tax rates are still much higher than in the UK, the overall tax burden is over 50% of GDP versus around 35% in the UK; this will also put firms off. Almost certainly if he tries to get the tax burden down, if he tries to deregulate labor markets then he's going to face huge, possibly violent protests as we've already seen.

Sputnik: One of the provisions of the published whitepaper introduces free movement for EU citizens. How likely is that to be accepted by hard Brexiteers?

Richard Wellings: The real controversy is over the low-paid workers and the burden that they place on the welfare state, particularly if they decide to settle long term and have families etc. And that's where there's room for maneuver after Brexit. You could make the welfare state a little less generous.

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Sputnik: In your view, does the paper address the concerns of the British businesses?

Richard Wellings: Of course you can't treat British business as one unified bloc. So you can divide it into two. So you have these big multinationals that tend to favor a common rulebook with the EU because they do a lot of multinational trade and they have these very complicated supply chains. And they actually like the EU regulation because it protects them from the competition.

Then you've got the smaller businesses who suffer a lot from all this red tape — it's hugely costly, it's hugely complicated and they don't have resources to have these vast compliance departments. At the moment they get no things that are being lobbied hard by the big businesses, which is predictable and the small businesses are going to lose. It looks like the UK is going to be stuck with a little bit of this EU red tape ad infinitum.

Sputnik: The plan has already led to resignations of key figures, such as Boris Johnson and obviously David Davis as Brexit minister. Do you think there's going to be more?

Richard Wellings: I think probably in the short term we won't see any major figures resigning, if they were going to go they would've gone already. In the longer term, it's more difficult to predict, particularly if the government is forced to compromise even further and move towards a soft Brexit during the negotiations with the EU.

We might see some casualties then, but I think the Brexiteers within the Cabinet face a dilemma: will they have more influence staying inside the Cabinet and being able to debate issues there or do they lose influence because they have to, to some extent, take the party line; would they be better off speaking freely outside the government?

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It's very difficult for them to pick the right strategy here, but of course it speaks to a much longer divides within the Conservative Party where you have a big split between the true Conservatives and the classical Liberals against what used to be called the Blairites, who could easily be from the right of the Labor Party. This is the problem here; there are ideological divides that Brexit is really exposing.

Sputnik: What's your take on the consequences of these resignations? Will they have an impact on Mrs. May's position with regard to Brexit talks with the EU?

Richard Wellings: In the short term it will make the negotiations easier, because now we have a much more Remainer dominated Cabinet and government, so this means if further compromises are needed to move closer to the EU position, it will be much easier, whereas the hardline Eurosceptics would have blocked any of these compromises. But the question is whether the government can survive with this very angry minority within the Conservative Party.

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Sputnik: US President Donald Trump is set to arrive in the UK, many experts have noticed that his visit may have a negative impact on Brexit. Do you think that is the case?

Richard Wellings: What is true is that he's not exactly known for his diplomatic language. So when he does wade into the Brexit row, this gets reported widely in the media and dredges up some of these problems and opens up old wounds and that's not very helpful for Theresa May who would have like to put this to bed after a nightmarish couple of weeks.

As far as Trump's influence over Brexit itself, I think it's probably quite small. He may be the author of the prospects of the trade deal with the US but that would take probably several years to get into place so in terms of the medium term negotiations he doesn't really have that much influence at all.

The views expressed in this article are solely those of Dr. Richard Wellings and do not necessarily reflect the official position of Sputnik.