The City Will Decline—and We Will Be the Poorer for It

Yves here. Since an increasing number of studies have concluded that an overly-large financial sector is a negative for economic growth, many readers might take the view that the hand-wringing about the damage that Brexit would do to London’s status as a financial center is overdone.

However, even if you accept the view that Leave voters accepted the warnings of the Remain campaign, that a departure would entail economic costs, the members of the Government tasked to manage Brexit seem to be in denial that there will be much in the way of transition costs of a Brexit. And as a result, they seem to be equally unwilling to accept the idea that Britain would need an explicit national strategy during its economic restructuring, as opposed to the neoliberal answer of a national strategy by default (i.e., one in the hands of the politically best connected industries).

This article sketches out at a high level how dependent the UK has become on the City and how even the optimists’ estimate of how much business it would lose in a Brexit would still have a big impact on tax receipts and incomes. And it illustrates why the financial markets are complacent about Brexit. The clear bet is that it won’t happen, with the cynics believing that the Tories never planned to follow through, and others anticipating that once the party leaders come to grips with the risks and the costs, they will be forced to find a way to back out.

By Nicolas Véron, Senior Fellow at Bruegel. Originally published at Prospect Magazine; cross posted from Bruegel

“Brexit frees us to build a truly global Britain,” enthused Boris Johnson in his Telegraph column immediately after being appointed Foreign Secretary. If anything presently embodies the vision of “Global Britain,” it is the City of London, that marvel of a world-leading, cosmopolitan, ferociously competitive and efficient financial centre that serves as a powerhouse for the entire UK economy. But just as the City owes much of its current awe-inspiring prosperity to European integration, the brutal realities of Brexit will make it shrink, not thrive.

All this is bleak news, not just for the City but for the national economy. London’s financial sector is a huge generator of tax receipts for the government: according to the City of London Corporation, in the year to March 2015, the City paid £66.5bn in tax, equivalent to almost two thirds of the national education budget. It also provided revenue and profits for innumerable non-financial businesses, not to mention easier access to capital for many UK companies. For all the anger directed at fat-cat financiers, their mass emigration will do the nation no good. The reason, in a nutshell, is that the European Union’s single market has always been much more than a free trade zone. From its very inception as the 1950s European Coal and Steel Community, the EU has been about removing “behind-the-border” barriers to business and creating a single economic space regulated by supranational authorities. (This is why EU-level competition policy is so central to the whole project.) Deep economic integration goes hand-in-hand with supranational administrative capacity, especially in economic sectors that require intrusive public oversight, such as regulated services and especially finance. As Dani Rodrik, the Harvard economist, put it in his 2011 book The Globalisation Paradox: “Markets are most developed and most effective in generating wealth when they are backed by solid governmental institutions.” The EU project, for all its twists and turns, can largely be summarised as applying this insight to a continent-sized region. The fact that the single market vision is still far from fulfilled, especially in the service sectors, does not invalidate the logic of deep integration.

Until now, the City has benefited disproportionately from the EU single market. London achieved its current dominant position in international finance in three phases: a head start in the 1970s with the development of international currency markets; a sharpened competitive edge in the 1980s thanks to the de-regulatory “big bang” of the Thatcher era; and in the 1990s and 2000s, a centralisation of most of Europe’s wholesale financial activity thanks to the aggressive dismantling of national barriers by EU legislation on investment services, financial instruments, fund management, accounting standards, market infrastructure, and much more. Crucially, the structure of the EU single market allowed non-EU financial firms, including financial behemoths in the United States, to conduct most or all of their European business from a single location—London—allowing for significant cost savings. On most measures of wholesale financial activity, London’s share of the EU financial market rose sharply after the early 1990s, typically to three-quarters or more, while the other contenders such as Frankfurt or Milan or Paris all shrank to single-digit percentages.

These benefits, of course, might be preserved if the UK stays inside the European single market. But the more one explores possible scenarios, the clearer it becomes that “Brexit means Brexit” not only from the European Union, but also from its single market. This is only partly about free movement of people, the issue that tends to dominate English debates. Even assuming all sorts of emergency brakes on foreign workers, UK membership of the European Economic Area (EEA) would provide the exact opposite of the “Leave” campaign slogan of “take back control.” On almost all issues of financial regulation, and many more in other sectors, the UK would have to submit to EU diktats over which it would have no influence, an essentially unacceptable position for a sovereignty-focused post-Brexit government. It is no coincidence that all EEA members are nations whose independence is rather recent (1866 for Liechtenstein, 1905 for Norway, 1944 for Iceland) and who make comparatively less of a fuss about national superiority. There is (to paraphrase George Osborne) a remorseless logic that will lead the UK to leave the single market as it leaves the EU, at best with a few years’ additional delay. Only a reversal of the entire Brexit process could prevent this from happening, but that would certainly require a second referendum, which for the moment appears improbable.

In sum, by far the most likely scenario for the City’s future post-Brexit is one in which there might be access to the single market, but from outside, as is currently the case for jurisdictions such as the US, Canada or Japan. In some market segments, EU regulations and bilateral agreements may allow for equivalent status, but not in all areas and presumably not forever. One may call this scenario “Switzerland-minus.” Switzerland is not a member of the EEA and has its own sovereign framework for financial regulation. It has agreements with the EU that grant its firms some access to the single market. But this stops well short of single market membership. Not coincidentally, much of the large Swiss banks’ services to EU clients are provided through their London affiliates, rather than directly from Zurich.

The impact on the City of being outside the single market is inevitably a matter of speculation, given the complete absence of precedents. The optimistic view is that only a limited share of the City’s business, perhaps somewhere between 15 and 25 per cent of its activities, will need to remain inside the single market and thus will move outside the UK, with the rest unaffected by Brexit. It would be a significant blow, but far from a fatal one. This view, however, downplays the risk-management and cost advantages of keeping all parts of a business contained within one single entity. In the current system, the UK affiliates of large international financial firms internalise a vast array of operations, which would be split if a significant subset had to move to a separate jurisdiction. For at least some of these firms, it might be preferable to move the bulk of the business, rather than suffer the consequences of fragmentation. If so, the financial services that move onto the continent may drag a much larger volume of activities along. The network effect, which has been the City’s best friend in the past 20 to 30 years, could become its most implacable enemy.

Or look at it this way: the City has thrived in recent decades because it was the best place to do financial business in its part of the world, which the financial set refers to as Europe, the Middle East and Africa (EMEA). Post-Brexit, the loss of single market membership will become a clear disadvantage in comparison to EMEA financial centres inside the EU, which the City’s other comparative advantages may not offset. British firms such as, say, Barclays or Aviva may endeavour to keep as much of their business as possible in the home country. But non-domestic ones, whether from America, Asia, or the EU itself, will have no sentimental or otherwise non-bottom-line-related reasons to linger in London if there are better business conditions elsewhere. A number of places will jostle to eat the City’s lunch, including Amsterdam, Brussels, Dublin, Edinburgh (if Scotland has serious prospects of staying in the EU), Frankfurt, Luxembourg, Madrid, Milan, Paris, Stockholm, Vienna, and others as well. Given the enormous opportunity, these cities and their respective countries will compete hard to burnish their existing credentials and remedy some of their handicaps in terms of attractiveness for financial services. It may be that neither of the two most often cited contenders, Frankfurt and Paris, will be winners in this contest, because of unchangeable rigidities such as onerous labour regulations. But there are enough places in the EU with top marks in cultural vibrancy, physical infrastructure, English proficiency, independent judiciary, and other key factors, so that it is likely that at least one and possibly even several (in a first phase) will become, as London has been so far, the best place to do financial business in EMEA.

Attitudes of regulators may further tip the balance. In the EU, national and euro-area authorities have been effectively prevented from discriminating against UK-based firms thanks to the single market framework and its enforcement by the European Commission and European Court of Justice. Such protections will erode when the UK leaves. Perhaps less evidently, the US authorities’ stance may change as well. In recent decades, American federal regulators have tended to be rather accommodative in their relations with their British counterparts, since operations from the UK provided US firms access to the vast EU market. When this beachhead function disappears, one may expect them to become more demanding in terms of UK regulatory standards as they are with smaller offshore places—seeing no particular advantage in having US firms conduct activities from London rather than from New York, Boston or Chicago. Similar incentives may apply in other non-EU jurisdictions.

To be sure, London is set to remain the largest financial centre in EMEA for the foreseeable future. It is currently so dominant that it will presumably take a very long time for any of its regional competitors to surpass it. There are also factors that will make it burdensome for some activities to move elsewhere, such as the depth of case law from English courts that can’t be easily replicated. But that will be little comfort. For the reasons given above, the City is likely to decline in absolute size, and even more so in relative terms as global financial activity can be expected to keep expanding overall. The EU will probably pursue further cross-border integration, perhaps implementing its project of a Capital Markets Union alongside the ongoing reshaping of the euro-area banking landscape under the policy framework known as Banking Union. Meanwhile, financial activity will probably keep growing at a rapid clip in Asia. Over the long term, at least one major financial centre may emerge inside the EU, and at least one also in Asia, that would grow enough that they would eventually outrank London. Given the likely continued strength of New York, the City would then drop to fourth place globally, if not lower. The future of London outside the EU single market may resemble the present situation of Tokyo in Asia: a highly developed financial centre with respected institutions, but too insular to maintain itself in the truly global leadership league.

What can the British (or, if Scotland secedes, English) government do to improve the City’s prospects against this grim future? Two different paths may be pursued, and it is possible that both will be tried at different times, or perhaps even simultaneously, in the years to come. The first strategy, which may be labelled “near-remain,” is to stay as close as possible to the single market, by emulating most EU rules and maintaining close cooperation between UK financial authorities (such as the Bank of England and Financial Conduct Authority) and their counterparts in the EU. The second strategy is of “going alone,” enhancing the difference between the UK and its larger neighbour and boosting the City’s competitive edge on at least some market segments through more favourable tax and regulatory treatment, as most off-shore financial centres do. But these two strategies are largely incompatible with each other. Furthermore, none of them is exactly a winning one: “near-remain” will never be as good as being in the single market in terms of mainstream EU financial business; “going alone” implies focusing on a limited number of niche segments and losing the one-stop-shop position that the City currently enjoys—not to mention possible retaliation from the EU and others in case the stance becomes overly aggressive. Different firms in the City, and different factions within government, can be expected to advocate either strategy. If, as may be the case, UK policy shifts from one to the other and then back, it will fail to reap the full benefit of either.

The market reaction has been rather muted so far, but this may only be because the harsh reality of Brexit has not fully surfaced yet. Reliable data about the “Leave” vote’s impact on investment or capital outflows will not be available until this autumn. Moreover, the international financial media, being largely headquartered in London, have various incentives to focus on the bright side. The London-based financial community, which normally acts as a ruthlessly unemotional processer of information, may also be biased in its initial judgment, not least because so many of its members have themselves voted in the referendum. The rest of the world, including non-European investors, is critically dependent on these two clusters of sources—London-based international media, and City analysts—for their own assessments. On this particular issue, then, global information channels may be viewed as temporarily impaired. But this gap cannot last forever.

Recognising the high probability of the City hollowing out as a consequence of Brexit is not about “talking down” the UK economy, but rather acknowledging an impending tragedy. The future described here is terrible news not just for London and England, but for Europe as a whole. No prediction is ventured here about the pace of decline, which, among many other things, will be highly dependent on the occurrence of financial crises. But its reality appears inexorable, and only secondarily dependent on the specific political motivations of policymakers in London, Brussels, Berlin, Washington and elsewhere in the years ahead. The golden age of London in the 2000s and early 2010s, a place of blatant excesses but where everything seemed possible, that made Paris and even New York or San Francisco feel provincial, a de facto capital of the world, may be wistfully remembered as a fleeting wonder. It will be sorely missed by many.

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  1. PlutoniumKun

    First a point about the choices available to the UK – an important point, which does not seem to have sunk in yet with the UK establishment – is that the choices will not be made by them. Once the A.50 Declaration is made, all the cards are in the EU’s hands (and indeed, in the hands of the US, Russia, China, etc). The UK can come forward with any proposals it wants, everyone else can simply say ‘no, thats not how its going to be’. British politicians can talk all they want about staying in ‘the Common Market’, or ‘taking the Swiss option’. But it is not their choice.

    And the UK will suffer in two particular regards – one is that they have few real friends and allies in Europe – even traditional allies such as Poland (which always saw the UK as a counterbalance to Germany and France) or centre right controlled political parties such as in Spain and Germany and the Netherlands, are so angered by Brexit (and past arrogant behaviour by UK governments), that they will not accept any domestic political hits to make life easier for the British government.

    The second issue is that ultimately, international negotiations always come down to what politicians can sell to their electorates and business interests. There seems no appetite whatever among electorates in Europe (even among eurosceptics in France, eastern Europe, etc), to play nice about this. And while no doubt some business interests would like to minimise disruption, far more see an opportunity to scavenge the corpse of British industry. The French, Spanish, Italian, Dutch, Irish, etc., will be under fierce domestic pressure to grab jobs and industry from the UK. The Eastern Europeans will be eyeing up car plants, the French will be looking at aerospace, the others will be looking at finance.

    1. vlade

      absolutely agree on both. It fascinates me how the brexit fans expect the UK govt to push their agenda (fair enough), but at the same time insist that the other government will have to drop their agenda (=electorate) and do what’s best for the UK, not best what’s for them.

    2. Oregoncharles

      Something fundamental bothers me about this. There are quite a number of Anglo-Saxon (as well as other) nations doing quite well outside the EU. Most of us live in one, but there are several others.

      Why is Britain itself so different, once things settle out? Just because it’s so close to Europe? So is Russia.

      Yves is correct about transition costs. They’re going to be considerable. However, transition costs are not a reason to avoid a (positive) change unless they’re very high indeed. At this point, there seems to be no way to calculate them; but like Haygood a while ago, I suspect that Britain will survive, even if the UK doesn’t. Scotland would have eventually fallen off anyway, and despite Plutonium Kun’s points, much the same is true of NI. Just a longer eventually.

      There are costs but there are also potential benefits, as several commenters made clear, as indeed Yves did when she noted that sovereignty has value. The big question is how much, and that will depend a lot on the kind of government Britain has.

      1. Yves Smith Post author

        I’ve written extensively on this topic over a period of months as to why Brexit will be hugely disruptive and massively costly to the UK. And the Tories and UKIP have sold UK citizens a boatload of lies (or worse, cynically manipulated them, since UKIP was pumping for Brexit to further squeeze UK workers to the benefit of the elites). The fact is that the “take back our sovereignty” line is crap because the UK will have to comply with the overwhelming majority of EU rules as a condition of selling into the single market and will have no say in them being outside the EU.

        The Brexit play was a power struggle between Boris Johnson and his allies and the rest of the Tories. Johnson never intended to win. But he did and now the UK is hoist on his petard. There’s no serious plan whatsoever re how to handle a Brexit, not just the vital economic planning but even the negotiations. The UK side has repeatedly reveled itself to not understand the basics of things like WTO rules and the implications of binding EU treaties.

        In addition, it would be one thing to get a comment of this sort from a newbie to this site, but you are a daily reader. It’s discourteous for you to make a comment that makes clear you haven’t deigned to read any of the prior posts on this topic. I suggest you click on the Brexit category and do your homework.

        1. Ben

          As you note highly financialised countries see a net drain. We have parasites and we are expecting them to only attack abroad. No they attack everywhere, leaving the UK with high land costs.

          Overall the UK will be better off without the city but economists will disagree because they use absurd items like GDP.

  2. Hayek's Heelbiter

    Let us indeed see how it plays out.

    You can see the incredible disproportionation that reliance on the City has had on real estate values and thus the average Londoner.

    Modest single rooms in London now rent between GBP700 (USD980) and GBP900 (USD1260) per month in Greater London [and should you doubt me, walk along any High Street and peer into any estate agent window], with nicer ones costing much, much more , and most salaries paying post-tax around GBP360 a week [with around a million Brits on zero-hour (or no guarantee of work at all) contracts], more and more average Londoners – teachers, policeman, shopkeepers, etc.IM are being driven farther and farther out of the city or being squeezed into tinier and tinier accommodations.

    Will Brexit change this? No one knows.

    But most certainly, the status quo would have only made the situation worse..


    1. vlade

      TBH, a lot of the real estate prices is not really (directly) caused by the finance guys – as most of them live outside of M25. A lot of the real estate price rises was driven by the foreign buyers, because it was (and still is) cheap and simple buying a London flat/apartment (unlike say buying an apartment in NYC, where rent controls and what have you can be much more headache).

      London living wage adoption was long overdue (there’s a bit of of irony, that it was Tories who introduced it, not Labour), and I’d say should grow even faster than it does.

    2. PlutoniumKun

      There have been a few articles floating around suggesting that the bubble has already burst… it always takes several months (at least) before you can tell the difference between a correction and a collapse, but I suspect that it has hit its limits. The only thing that might save the London property market is, ironically, that a falling sterling might make it good value for foreigners.

      I suspect that the government and City will do everything it can to prevent property going down. The impact on domestic banks parallel to Brexit could be devastating.

  3. TomDority

    Well worded essay that epitomizes the bent knee and high praise to the glory and magnificence of the financial sector. The financial sector; that bastion of all that is good.

    1. paul

      Indeed, those last two sentences are a wonder of of wistful thinking.

      As the present government has successfully driven down the living standards of the majority while within the EU, will those outside the magic kingdom notice that much of a difference?
      The EU, in its enthusiasm for such outrages as imposed technocracies,CETA and TTIP, seems in agreement with such policies.
      We’ve thrown a lot of industries under the bus in the last 30 odd years and been told to like it or lump it. Why should this elicit such sorrow?

      1. JTMcPhee

        Pity the poor remoras that feed on shark feces… Feces made up of the digested carcasses of shark prey…

        That which cannot sustain, will not. All that’s needed is an innovative way to get to the next frame of the great looting picture show…

  4. Jeremy

    I dont get the point of posting this article by NC. If NC promotes the MMT view that funding for national programs doesn’t depend on taxes then why is it posting an article that propagates the opposite? And NC has time and time again posted many articles about how highly unhealthy the UK’s financial sector is for the country, the supposed gains from speculative trading not backed by evidence and other financial sector nonsense. Then why post an article that reinforces the feeling that nothing can be done?

    1. Yves Smith Post author

      We don’t run articles to promote ideology. We run articles to provide important information. We took a very unpopular position on the Greek bailout talks last year based on an analysis of the power and negotiating dynamics that proved to be accurate. And I seem to recall that you were similarly angry about our coverage then.

      We have not ever posted an article that says that the City is unhealthy for the UK. We have posted many articles that have said in general that oversized financial sectors are a negative for growth. You can extrapolate that that applies to the UK, but you have misrepresented what has appeared on this site. And even if having an oversized financial sector is a bad place to be, there are transition costs in changing the structure of the economy. It will result in a reduction in average incomes for a period of time even if there were a well-thought out plan for economic revitalization. The Tories are in utter denial (or more likely, not serious about Brexit) and don’t have any plan whatsoever about what to do about the various job losses that will result from a Brexit (not just in the City, but also in key manufacturing sectors, like transport, where many producers are in the UK mainly to produce for export to the Continent and will shift production there if the UK were to lose access to the single market).

      The UK is already running a large current account deficit. That will get worse if the City shrinks. That means the pound will go down further, which will create inflation (the cost of imports will rise), which constrain the ability of the UK to run deficits. MMT theorists clearly and regularly stress that the constraint on government spending is inflation, and that’s a live issue with the UK. And that’s before you get to the fact that the UK ideologically is not predisposed to run budget deficits on a sustained basis.

      You also choose to ignore that many of the Brexit proponents who were touting the “take domestic control back” as a populist gesture in fact plan to further weaken the status of UK workers. The EU labor regime offers protections that are expected to be removed if the Tory Brexiters get their way.

      1. Jeremy

        Thanks for your reply. It certainly provides for more clarity. As for oversized financial sectors, one can very reasonably guess that the UK has an oversized finance sector (which is mostly interested in investing in mortgages not the productive economy). Can you please point to an article that covers transition costs?

        Also, as a longtime reader, I would be interested if you posted an article on the situation of the world right now and how it has changed since 2008.

      2. Jim A

        I think that we can distinguish between having a financial sector that is too big for the economy that it is linked to, and the benefit of having those in charge of it living locally and paying local taxes. Certainly if the City is too big for the EU, it is way too big for the UK. I don’t think that anybody contemplates that it can be as big as it currently is if it is cut off from the EU. But given that you have a large parasitical mass sucking blood out of the economy, it IS a benefit to have it located such that you can tax it, and sell real world luxury products to those who manage it.

      3. paulmeli

        “MMT theorists clearly and regularly stress that the constraint on government spending is inflation…”

        This is not accurate. They say that the constraint on government spending is the availability of resources for sale. All spending, regardless of the source, comes with an inflation risk.

  5. john gleason

    “But non-domestic ones, whether from America, Asia, or the EU itself, will have no sentimental or otherwise non-bottom-line-related reasons to linger in London if there are better business conditions elsewhere.” This sentence reminds me of the need for a “stronger” United Nations”: Cosmopolitan/Local, International Corporation/citizen, Ford Motor Company moving production to Mexico/worker-citizens remain home, corporation-person/human. Without a strong United Nations it is a jungle out there and citizens are the prey.

  6. Richard

    First of all, London was the major financial center of the world long, long before anyone thought about an ‘E.U.” There is no intrinsic reason for that to change. Having worked in the City, I can tell you nobody ever thinks about the “E.U.” or Mr. Draghi or anyone else connected to the European political establishment. They get on doing what they do and Europe is actually a surprisingly small part of that equation. (It’s not PC to say any of this, though).

    Second, why does Europe (appear to) care so much about whether Britain stays or leaves? Do they actually care? On balance, it really makes no difference to them… except to those who are desperately trying to augment their political power. The average European couldn’t care less whether Britain stays or leaves.

    It is pretty scary to think that membership of the E.U. is somewhat like the fate of the 13 colonies when they formed the United States. Although they were promised – as a condition of their agreement to join – that they could secede at any time, it wasn’t quite so simple, was it? Britain will show the way… that it IS possible to secede – but only just. How much longer will it be before countries that try to ‘secede’ from the E.U. are met by the ‘European army’? Ugh!

    1. vlade

      DB doesn’t care about EU, because it can sell into EU regardless (similar for BNP, SG). Oh except its sales people who are in London would have to be physically located in EU now.

      US banks have legal entities incorporated in the UK exactly for the reason so that they can sell into EU w/o any problem.

      I spent a year at a non-EU bank (London branch, so not incorporated) marginally involved in getting EU financial passport, and I can tell you, it’s a very very painful process. You have to talk to every single banking regulator in every country you want to passport in, every one has a slightly different process and requirements, and it doesn’t help if you’ve been passported somewhere else. Even when you are passporte, you’re passported for specific products and services, and when you want to include more, you have to apply for a new passport. So, to summarise, there’s no such thing as “EU banking passport”, and it can be very painful and a long-drawn process (we gave up on France, because in our estimate it would take over 18 months to get it)

      Also, remember that while the banks are the most visible part of the City, they are not the only part. Insurance and asset management is a very large part of the exports, and these would be affected very much too.

      Moreover, the point that a lot of people ignores (as it seems you do), is that when these institutions would move to EU, not only the exports to EU would disappear, but the exports to the RotW. The question is, what would also happen to the ecosystem around it (consulting, accounting, law) – would it stay in the UK, and just incur the higher costs of sending people on business trips more, or would it judge that being close to the clients means they are less likely to forget you exists, and the only way to get good inside intel, and move at least parts of their staff out too?

  7. Moneta

    Brexit is a red herring. Banking has gotten too big for its britches and now the weakest threads are starting to unravel.

    If it was not Brexit, some other shock would have surfaced.

    1. paul

      Correct, but the saving grace is you can pin brexit as pretext on a bunch of disillusioned,racist and, frankly, superfluous voters whose ignorance will be their own fault and (silver lining) comeuppance.

    2. Atalanta69

      Totally agree. Moreover this article makes the usual mistake of analysing one piece of the puzzle as if none of the others existed. There are innumerable stresses and strains building up in the global system and many of these have been heightened by a bloated and parasitical financial sector. The idea that maintaining the status quo is a viable option for humanity is delusional. I’m reminded of Yeats’ poem ‘The Second Coming’: things ARE falling apart, because the centre cannot hold.
      Apart from this general point, I was disappointed by this article as it repeats some wearisome canards that really should have been banished from intelligent discourse aeons ago, whilst simultaneously overlooking some vital factors that have historically driven the size and ‘success’ (note that these are equated in the article) of the City, most of which continue to do so. In the first instance, the idea that the City is a major source of funding for productive businesses is a dreary old myth, as has been noted over and over. In the second instance, it was the birth of the Eurodollar markets in the 1950s and 1960s that really ensured the post-war regeneration of the City, when the idea of a single market was a twinkling in Monnet’s eye. What saved the City at that point was the deliberate cultivation of a regulation-free zone, something that has been carefully nurtured ever since. The last point which is completely overlooked here is the role of the City as THE key node in the global offshore industry, which is facilitated by its historic links with most of the other major offshore centres, the elites of former colonial states and major resource-plundering corporations looking to spirit money away quickly and anonymously. Again this has little to do with the EU and is unlikely to be threatened.

    1. Oregoncharles

      Which will lose, just as it would have in Greece (though it might not now.)

      Just because they want to give the establishment the middle finger and deal with fewer immigrants doesn’t mean they want to overturn the whole apple cart.

      LePen’s party does not have a record of winning elections, but I suppose there’s always a first time. Too bad it has to happen that way. podemos would be so much better.

  8. paul Tioxon

    Hopefully, a Brexit will bring about whatever reign of chaos down upon the British government, enough to complete the unification of Ireland as a whole and driving out the last vestige of British Imperialism in Europe. Don’t know or care enough to say what the implications are for global markets, that’s their problem. I will say, a United States of Europe will be that much easier to complete without the British, and that is also a good thing.

    1. paul

      I find it very hard to share your hopes. Chaos is pretty much what the british government specialises in already, any addition to this will be extremely unwelcome.
      They have no ideas beyond the razing of the public sector and selling off its assets, it is truly the march of the malevolent morons.
      Think of pauly busting out the joint, that’s the blue tories.

      The unification of Ireland looks highly unlikely to me and there is little organisation towards that goal as far as I can see, 16% wanted unification in a 2015 NI study, it has been higher (~36%) in the republic, but I think it would be a hard sell in the current circumstances.

      Here in Scotland we might differ about it being the last vestige of english imperialism.

      A united states of europe under the current antidemocratic vivisectionists is also something I can easily contain my enthusiasm for.

    2. PlutoniumKun

      There is a lot of trouble brewing in Northern Ireland over Brexit.

      Its flown under the radar somewhat, but there have been lots of manufacturing job losses recently in NI, ironically in areas that voted for Brexit. These job loses have been almost entirely concentrated in protestant areas (basically, the last remnants of historic heavy manufacturing are now largely gone). Unemployment is now almost exclusively a male protestant issue in NI, specifically in DUP areas. And the DUP, very stupidly, supported Brexit. The problems over the border will only exacerbate this. And the current conservative government is stuffed with Anglo Irish agreement sceptics, including May herself. Once Scotland gets moving on its exit, the situation in NI is going to get very unstable. It may well be that the Republic will welcome a closed border, because they won’t want the trouble spilling over. And nobody in the Republic really wants to welcome as new citizens half a million pissed off heavily tattooed unemployed loyalists.

      1. paul

        Plus the public sector is the the sheet anchor of remaining stable employment in NI, could a fiscally constrained eurozone member such as the Republic take that on?
        It’s an extremely bleak outlook over there.

        1. PlutoniumKun

          I”m not aware anyone has really crunched the numbers, but I think that taking on NI would be a very heavy burden for the Republic, even if there wasn’t trouble. The hidden issue though is that a high proportion of public workers are catholics, while industrial workers are protestant. So even taking on that burden could be seen as discriminatory. Its a very difficult problem – NI is essentially a basket case, and will be more so when the last fragments of industry (Bombardier aviation, Wright buses and H&W shipping) pack up and leave, as they surely will soon.

  9. IDG

    Brexit is the least of the problems in the EU now, you gonna see some major fireworks next year with elections in France and Germany that will dwarf Brexit (and may dwarf even 2008 if things go worse possible way).

    1. Jack

      Why do you think there’s no declaration yet? Why bother to negotiate with people that are not likely to be in power in 12 months when a big shift in power could occur?

  10. George Phillies

    There are other things in the world besides wealthier and poorer. The folks arguing against Brexit were not always clear on this, thereby weakening their case.

    There is a great deal the UK and the EU can do to be unpleasant to each other. This unpleasantness is worse if the Scandinavian claim that the UK is not a member of the WTO, once it leaves the EU, is accepted, because then the unpleasant things the two sides do to each other cannot be appealed in a useful manner to the WTO. The EU would not like 3 million Europeans dumped on their shores in a short period. The UK would not like to be cut off from offering financial services to Europe. The Germans would not like the export of German cars to the UK being banned.

    However, many Englishmen would be happy if the price of homes fell to an affordable range.

  11. Sound of the Suburbs

    The City will always be the financial cesspit of the world.

    Getting away with things you can’t do elsewhere will always be its biggest draw.

    Even Wall Street has to go to the City for its most reckless operations.

    The London Whale ……. where else?

    The division that bought down AIG ……. Curzon Street, Mayfair

    It’s a cesspit and financial people love it.

  12. Oregoncharles

    ” the City paid £66.5bn in tax, equivalent to almost two thirds of the national education budget.”
    I may be picking nits, but, while this is objectively an enormous amount of money, in the budgetary terms Americans are used to it isn’t very much. What PER CENT of the City’s income is it? If the City is an economic power house, shouldn’t it be paying more tax than that?

    Besides which, any MMT-er would point out that that’s easily replaced by any government with a sovereign currency – IF it isn’t in thrall to the financial sector.

    In a way this is the same point: reducing the City’s power might be a good thing, IF the correct measures are taken to bridge the transition and make up for the losses. You can’t expect the Tories to do that.

    1. paul

      That is the author conflating tax paid by the banking sector with the giddy world of ‘the city’.

      It includes 1.1 million workers, the majority of which will be in the retail sector throughout the uk paying 30bn in employment taxes.

      Corporate taxes = 7.6bn, a slightly more modest number.
      Perhaps a case of the city taking more credit than is due.

      For those more fiscally literate: here’s the city of london report

      1. St Jacques

        Do you believe the financialisation “cancer” can be tamed so as to avoid the treatment with its nasty side effects?

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