Can the City afford going the Thatcher way?

The question, inevitably as soon as it is made, turns into a boomerang. Would the Union’s ability to participate in the capital markets be hit if Britain’s Conservative-led government abided by the rejection of the pan-European project that former prime minister Margaret Thatcher–who died today–has come to embody in British politics? But London’s financial industry isn’t concerned by the consequences for the Old Continent. In a recent study, the Square Mile detailed where it would hurt for the many global banks and investment houses it hosts.

The size, dimensions–international projection and all–, even the working routines wrapping the financial hub in London together with the rest of its European neighbours have little to do with Switzerland’s case, which some analysts see as the closest thing David Cameron and Chancellor George Osborne could aspire to. Yet, aspects of this scholar comparison have called the very City of London’s attention. It has paired with the Centre for Swiss Politics and the University of Kent to envisage what would become of the British banking industry if the UK exited the European Union and behaved like a sort of great Switzerland. It won’t be a nice scene, they concluded.

In principle, the Swiss approach sounds exactly like the relation the eurosceptic Iron Lady wanted for Britain regarding the EU: a “set of disparate sector-specific bilateral agreements developed over time, including on Schengen but excluding financial services,” very “informal Europeanisation,” and autonomous adoption of EU laws.

The freedom Switzerland enjoys, though, comes at a price. It seems that Brussels doesn’t believe in free lunches, either. The new regulation the European Commission and the European Parliament have sanctioned since the crisis began watches the financial sector with ever stricter eyes, and its constant renewal forces third countries to update and amend parallel legislation that lets them access the EU market.

Swiss banks, in fact, may sit aside EU agreements, but that position offers them scarce protection. EU rules on taxes, for instance, have pushed Switzerland to sign treaties with Germany and Austria, and more such accords are coming to the table. Also, Swiss lenders need set up subsidiaries in EU state members because, the report says, “cross-border service delivery would be merely tolerated where it is observed, not established by right, and room for interpretation remains.” That this game performs relatively well, the experts emphasised, depends on “EU goodwill.”

The result is that over 40 percent of all legislation in the tiny country has EU origin. “Free trade agreements are not enough, they need formal agreements,” too. On the other hand, Switzerland is left with little occasion to engage in this pan-European policy making that keeps creeping its way into Swiss laws.

For 60 years, Switzerland has defended its independence. The path is punctuated, nevertheless, by so many partial surrenders that it almost looks not worth the effort, the City appears to think.

But what do investors think? Using survey data from Morningstar, the Association of Investment Companies said private investors “still put past performance first, even though the regulator tells us this is not a guide to future performance.” Considering the record of the EU and the common currency, Brussels and Berlin will be mistaken if they read the City’s paper as proof of their victory.

About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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