London has long been the centre of European finance, but the slide in business now could just be the start of a lasting loss of market share, writes Shirley Skeel.
If the financial world is a big cake, as our learned economists kindly inform us, then it is no wonder that London has a stomach ache. Witness, for example, the morose faces ordering house white rather than champagne in the City bars; the sheepish scramble for the Surbiton train dead on six o'clock; the City staff noticeboards selling Fiats rather than Ferraris. And even more telling, the slow, sad exodus of young traders who find that they no longer have a job. The City, as any mother could have forewarned, is feeling poorly.
As the tale is told, it was our historical imperial taste that set us up for our indulgent role in the money boom of the past 30 years. The old Brit's risque interest in places and things exotic led to open-door policies and thus to London's pre-eminence as Europe's finance centre.
But now things are on the slide, and despite grunts that the City's slump is only a passing phase, warnings of London's undoing are arising. Researcher Amin Rajan, for one, cites Rome and Constantinople as models of the fragility of cities that become supreme. "Every notion or industry enjoying pre-eminence has failed to retain it for long," he writes. "This is largely because success for one becomes a benchmark for the other." Naturally, it is almost a duty to bring with bad news a panacea, and his is bottled as "knowhow". Only if the City wakes up to its need to shore up its bank of knowhow will its superiority in Europe be secure, he suggests.
His point, made in "Capital People", published by the eminent London Human Resource Group, is taken. His prediction (and he is by no means alone in this) of a new Europe with five major financial centres, with London maybe only a scratch above the rest, falls on more reluctant ears. Regardless, he insists: "London's share will be diluted."
Among the cake eaters, Andrew Hugh Smith, chairman of The International Stock Exchange (ISE), London, is one of the more reassuring figures. Solid as a bull whale in his confidence, and peering through eyes which suggest that he is not lacking in a little magic himself, Hugh Smith calmly rebuts every argument that London is in decline.
After all, London's SEAQ International system is the biggest trading pool of cross-border equities in the world, handling over two thirds of this business. London has more international banks than any other city on the globe. Our merchant bankers do more cross-border deals than any other European city's. And our knowhow in finance brings the Italians, the French and even the Germans to our doorstep. The City loves to play up the fact that even the giant ogre Deutsche Bank came to London to buy its merchant banking arm, Morgan Grenfell.
"I don't see a serious challenge to London as a financial centre as things stand currently," Hugh Smith intones calmly. "We have the skills, markets ... and a huge collection of international players. It's beginning to happen in Frankfurt and Paris, but ..." He trails off in a manner sufficient to make the continentals want to cut the United Kingdom adrift.
The chairman predicts that a more unified Europe will result in the kind of financial federation that we see in the United States, where there is one main centre in the time zone - New York (read London) - and several satellite centres (Frankfurt, Paris, Amsterdam).
Rajan's alternative, however - of several major European centres - is backed by one potent argument. Its name is "technology", and at least one of its architects, consultancy firm BWW's chairman, Peter Bennett, leans to the decentralised view. Now involved in work on PIPE, a proposed Europe-wide trading system, Bennett argues that whether or not Europe's 12 stock exchanges agree to the controversial idea of a "13th market" where all major stocks can be traded in one big pool, the market players will demand it and, if necessary, create it themselves. The eventual move to an electronic screen system served by satellite would mean that traders could live anywhere and "they will locate where it best suits them". This means fresh consideration of factors like tax regimes, property prices, travel convenience and even lifestyle.