The hypothesis that London may cease to be the financial capital of the European Union has mobilised other capital cities in the region, as they eye the chance of participating in the future benefit-sharing which the UK capital’s loss of status will bring with it.
So Paris, Milan and Dublin – which wields the argument of having the same language and the lowest corporate tax rate in Europe – as well as Frankfurt, Amsterdam, Lisbon and Madrid are all making a push and dreaming of grabbing a slice of the huge financial power which London currently treasures. And they are going the whole hog with campaigns offering their services and publicising their strengths. Spain wants to get involved and can’t, although both Madrid and Barcelona have their aspirations.
But Spain has now been without a government for over 300 days, and all that situation implies, in terms of budgetary issues and good corporate governance, is taking its toll. The promotional activitities attempted by regional governments like Madrid are futile, as Rajoy’s government is a partner with too many asterisks beside its name. And this translates into a complete lack of any influence.
The EBA holds the key to the future
Going from the abstract to the more concrete, what the aspirants most covet is none other than the European Banking Authority (EBA), currently headquartered in London. It is an organisation within the ECB’s orbit, with regulatory and supervisory functions which tend to increase transparency in the European financial system, as well as identifying weaknesses in the banks’ capital structure. Whichever city ends up taking the EBA under its wing will have won the battle to be the financial reference for the Eurozone on a global level.
As an example of the importance of what is in play, and the volume of business, suffice to say that activity in the currency market, or the forex market, has brought euro-denominated transactions to the City, for the subsequent compensation and liquidation of the payments in euros, worth a massive 2 billion euros per day.
Madrid is amongst the capitals which have begun to be put forward, a well positioned global city or Alfa, according to the latest GaWC study (2012) from Loughborough University. On a Eurozone level, Paris is the only city ahead of Madrid, which is in the same group as Frankfurt, Milan or Amsterdam. Barcelona would be a level lower in this index, along with cities like Dublin, Vienna, Prague or Warsaw.
A lot of things have changed for Madrid since the start of the 2008 global crisis. Then the Spanish capital created most of the companies in the country and attracted the most foreign investment. It also had 600 firms in the financial intermediation business, almost 300 insurance firms and pension funds, and over 8,200 companies involved in auxiliary sector activity. At that time, reports like those from Deloitt had Madrid in fourth place in the list of world financial markets, behind New York, London and Paris, and with a chance of taking the French capital’s place. So not without good reason it is home to the Latibex and the Inter-American Development Bank in Europe.
Madrid is still the second biggest municipality in continental Europe by population, the third in terms of local GDP with over 120 billion euros. And as a result of Brexit, the Spanish stock exchange is now the third largest in the EU.
But Madrid’s supposed privileged position clashes with its innumerable weaknesses. To mention but a few, more than 300 days with a caretaker government, or a certain lack of legal security combined with the exasperating delays in resolving conflicts, or the absence of a defined fiscal policy. There are also some more mundane aspects, but these reflect a reality: and they could be focused around the chairwoman of the Stock Market Regulator, and her appointment. Or on the important fact that the last major change in Spain’s Penal Code goes back to 1974 and still holds dear the concept of “cause,” something which most lawyers vilify as it can damage many interests.