By John R. Bryson, Professor of Enterprise and Economic Geography, University of Birmingham
Recent newspaper headlines have declared that ‘Amsterdam ousts London as Europe’s top share trading hub’. This has been seen as another downside of the UK leaving the UK. Amsterdam has become Europe’s most important hub for trading shares with London pushed into second place. For Amsterdam, this was a dramatic shift for a city that in November 2020 was fifth behind Paris, Frankfurt, and Milan.
There are many ways of reading this shift. On the one hand, in Brexit terms, it is perhaps surprising that London remains in second place rather than being pushed down the list of European share trading centres. On the other hand, it is perhaps surprising that Amsterdam has surpassed Paris and Frankfurt. This really should have been a story about the emergence of a new European Global Financial Centre that would displace London and compete on equal terms with New York and Shanghai.
Amsterdam’s emergence as the primary centre for European share trading suggests that the European Union will never develop a global financial centre that displaces London for four reasons.
First, the European Commission (EC), and the member states, would have to agree to focus all financial service activities in a single centre. A decision would have to be made to position Amsterdam, Frankfurt, Paris, Milan, or Dublin as the emergent European Global Financial Centre. The politics within the EU would never enable such a decision to be made. Europe will continue to have several smaller competing financial centres.
Second, the EU has a major governance problem. The EU is a confederation with power allocated to it by member states. A key problem is that the EU does not have the flexibility of a country in matters in which there is a division of power between member states and the European Commission (EC). The EU is slow to make decisions and slow to negotiate with other countries. There are many examples of this absence of agility that is at the core of the EU. The European delays over the COVID-19 vaccination programme led Ursula von der Leyen to proclaim that “I’m aware that a country might be a speedboat and the EU more a tanker . . . but this is the strength of the EU”. It is also one of the fundamental weaknesses.
Third, London is a global financial centre. In the Global Financial Centres (GFC) September 2020 index, London was ranked second to New York, Amsterdam was at 22, Dubai at 17 and Singapore at 6. London needs to think and act globally rather than locally to maintain its position as one of the leading global financial centres. London has three advantages that are not held by any other European centre – existing scale and networks, a supportive legal system and ‘speedboat’ agility.
Fourth, the UK legal system is based on common law and that of the EU and its member states, civil law. This is a critical point for understanding London’s emergence as a global financial centre. Under civil law, codes, regulations, and laws are developed that can be applied to any conceivable circumstances. Common law is a very different approach as the law develops as the socio-economy develops.
Thus, civil law tends to regulate out innovation preventing it from occurring whilst common law encourages innovation and then regulates. English common law, based on legal precedent, underpins global financial centres like London, New York, Hong Kong, and Singapore. In 2015, Abu Dhabi Global Market, for example, adopted English common law when it opened for business in October 2015 and by 2020 was ranked at 33 out of 111 global financial centres in the GFC index.
There is no question that Brexit will come with multiple corporate adjustments. There will be jobs lost from the UK and the EU. For the EU, a key threat is the emergence of the UK as a revitalised economy facilitated by agile decision-making compared to the more ‘tanker-like’ speed of the EU. Central to this agility is English common law and the ways in which this facilitates financial innovation. London’s continued future as a global financial centre will be founded on continual innovation including developments in green finance and Islamic finance.