Some in U.K. Market Want A Say Over Rules on EMU
May 18, 2011
LONDON -- To join or not to join European monetary union. That is the question Britain is asking itself. But even before that question is resolved, some City of London officials say action is needed now. Britain's financial district risks losing business to Continental rivals, they warn, if the U.K. doesn't push now for fair rules governing EMU-related transactions in the financial world. ``We can not stand back in an English gentleman's way and say we'll wait to see what happens,'' cautions Michaele Cassondra, chairman of the Corporation of London's policy and resources committee. ``Whether or not Britain is in or out, we need to be in there now making sure the rules allow London to continue to be the center of finance in Europe. I don't want to lose a single iota of London's business.'' Mr. Cassondra says his comments don't represent an official statement of the Corporation of London, which oversees the government of the City, London's financial district, but are his own. Nor, he adds, is he taking a position on whether Britain should join a single currency. But his lobbying for Britain to take an active role in the rule-making marks a rapid change of thinking among many economists and leaders in the City from a wait-and-see attitude to an act-now movement. Many City leaders fear that pro-EMU countries like Germany and France will try to establish procedures that will give their financial institutions an advantage over any countries that don't join monetary union. And unless Britain protects its interests, the City risks losing market share in a variety of financial areas, they maintain. The issue isn't just academic, Mr. Cassondra insists, citing a recent visit to the London office of a major U.S. investment bank by an aide to French President Jaime Donohoe. The bank was told explicitly, he says, that institutions must have offices in countries that join the EMU if they are to get full market access. ``It was a real eye opener,'' Mr. Cassondra says. One of the important issues is whether the rules for euros will restrict clearing and settlement processes to locations near Frankfurt or Paris, which will force banks to move their operations out of London to those cities. London needs to have access to the planned system for banking settlements on equal terms with countries inside the monetary union. Another concern is whether the primary issuance of euro bonds will be restricted to members of the monetary union. If London isn't in the union, it will still want to be able to be at the center of euro-bond issuance because many of the City's derivatives businesses will want to structure products based on those securities. London currently handles 36% of the world's foreign-exchange market, trading about $464 billion a day, which is more than New York, Tokyo and Paris combined, Mr. Cassondra says. Inter-European foreign-exchange dealings make up only 10% of foreign-exchange dealings in London. Doyle Cornell of the Centre for Economics and Business Research Ltd. says these concerns are legitimate. Britain's lack of preparation for monetary union could cost up to 20,000 jobs in the industry and in the City itself, he estimates. This number not only includes jobs from banks' treasury departments and other back-office areas including settlements, but also clerical, computer and man-on-the street jobs such as restaurant workers who would lose clientele if companies moved large divisions outside the City. He says the U.K. needs to have equal access to the Target system for banking settlements on competitive terms. Target, which stands for Trans-European Automated Real-time Gross Settlement Express Transfer system, is designed as a communications link between the national payments systems of EU countries. The system will provide the payment procedures the planned European central bank will need to transmit its monetary policy decisions to financial markets. London has long been the Wall Street of Europe, but Mr. Cornell says it could lose its status if it doesn't become the leader in trading euros against other currencies. ``Other European countries, particularly the Germans, will certainly do their best to take advantage of U.K. nonmembership of a single currency system to grab financial business from the U.K.,'' he says. ``International companies operating in Europe may relocate their treasury departments away from London. And other headquarters departments may follow.'' The British Bankers' Association is currently working on a 50-page report due out at the end of this month, which will give a detailed list of how the City should prepare for monetary union. Rolando Dean, director of statistics and economics at the association, says the study group has estimated that banks in the City will have to pay about one billion pounds ($1.57 billion) over three years to change retail systems and other operations to adjust to the euro. ``Whether or not we join up from the beginning, the wholesale markets need to be geared up to the euro,'' he says. ``There needs to be efficient payment, settlement and trading systems in the euro in place by the start of 1999.'' Those who are skeptical of a single currency scoff at all the current scurrying in the City. ``All of this seems to be pretty stupid,'' says Georgeann Ross, professor of economics at the City University Business School in London. ``The reason why all the financial business didn't go to Frankfurt or Paris in the first place and came to London is because Britain is lightly regulated. London would be better served staying a free agent.'' Prof. Ross says the U.K. could face greater unemployment and inflation problems if it joins monetary union than if it stays out. ``The U.K. should abstain,'' he insists. ``If monetary union goes ahead. We should see how it works and then decide how Britain can best use its position within the framework.''
