Could Paris really steal City of London crown after Brexit?
French officials have been preparing for months to promote their financial sector and urge City bankers to consider a move
Hours after the UK’s vote for Brexit was announced, online adverts saying “Welcome to the Paris Region” aimed at international banks and investors were already running in the Financial Times and the Wall Street Journal.
Brexiters might have been short of a plan B, but officials in Paris’s financial district and the wider Paris region, despite being pro-remain, had been preparing for months to promote their financial sector and urge any bankers considering leaving the City of London to think about moving to France. More than 4,000 letters were immediately sent to investors boasting of the benefits the wider Paris Île-de-France region, run by the rightwing Valérie Pécresse, who was previouslyNicolas Sarkozy’s budget minister.
When the president, François Hollande, took an instant hard line on Brexit, saying the City of London could no longer continue its highly prized business of clearing euro-denominated derivatives, it looked like France would push the moral argument for restricting the UK’s huge financial services post-Brexit and attempt to reap the benefits for Paris.
But the issue of whether Paris might stand to gain from any potential City of London restrictions remains a giant question mark on a page of uncertainties. Like everything else about Brexit, it is far more complex than it looks.
The competition for any financial services that might leave the City – and it’s not yet clear what they might be – is ferocious, with a range of cities queuing up. These include Frankfurt, which is home to the European Central Bank and the financial capital of Europe’s biggest economy, and Dublin with its attractive corporate tax rates, as well as Amsterdam and Luxembourg. Paris is far from a certainty.
The French capital has certain selling points. Among these are its large asset management sector, several major European banks, skilled financial professionals, cheap office space, an attractive way of life and a wider Paris region that is willing to go the extra mile to tempt bankers and their families – there is already talk of building more international bilingual schools west of Paris to cater for them.
But Paris also has hurdles, not least the political class’s philosophical and moral attitude to high finance itself. Although Hollande has made a U-turn in the past two years to a more pro-business stance, he has never shaken off his vow during the presidential campaign that his greatest “adversary” was the world of finance.
Long before Hollande was president he was known for saying he didn’t like the rich, and he did his best to put in place his famous 75% tax bracket on earnings over €1m (then £780,000), despite struggling to fully implement the proposal and later quietly shelving it. Even the rightwing Sarkozy before him saw the 2008 crisis as “the end of a financial capitalism” that had contributed to “perverting” the economy.
A key issue in Paris is regulation, and the combined high taxes and charges on hiring staff. It costs companies far more in taxes and charges to hire a skilled worker in France than elsewhere in Europe. This means Paris’s bid to win over financial businesses has already become a call for change from some quarters.
“We have to end the anti-finance discourse and stop suffocating the sector with tax,” Guillaume Maujean wrote in the Paris business paper Les Echos this week. In the wake of the EU referendum result, Hollande told the same paper: “We have to adapt our rules, including our tax rules, to make Paris’s financial centre more attractive.”
Whether that can be done in the current climate – where the government’sproposed changes to labour laws have been challenged by the hardline CGT union for months – remains to be seen.
Paris clearly wants to have the last word on the long-running “red-carpet” gag that began in 2012 when David Cameron said London would roll one out for French businesses fleeing Paris and the promised 75% tax to soak the rich. The economy minister, Emmanuel Macron, said during the EU referendum campaign that France would “roll out the red carpet” for City of London bankers who might want or need to relocate if Britain left the EU.
Charles Wyplosz, director of the International Centre for Monetary and Banking Studies, said any speculation about what financial operations could move where post-Brexit was “a bit over the top because we have no idea of what any eventual accord will be”. But he said there was a large “anti-finance and anti-rich” political sentiment in France that wouldn’t help.
He said both Paris and Frankfurt might struggle to find the means to attract high finance as he saw them as countries “that have no sympathy for – or understanding of – high finance”, places that remained “extremely provincial from a financial point of view”. He said: “I can’t see how they will change themselves given the political and philosophical mood.”
There is little detail on what exactly might change for the City of London after Brexit negotiations that will go on for years. HSBC said earlier this year that it could move about 20% of its London workforce – about 1,000 jobs – to Paris in the event of a Brexit, saying jobs would go from the trading room and investment banking.