Is world history going into reverse? The great historian Fernand Braudel argued that the modern capitalist world economy always has had a city at its centre, starting in the later Middle Ages with Venice.
It shifted in the 16th century first to Antwerp and then Genoa. And finally, “in about 1590-1610, the centre moved to Amsterdam, where the economic centre of the European zone remained fixed for almost two centuries. Between 1780 and 1815 it moved to London, and in 1929 it crossed the Atlantic and became established in New York City.”
Since the 1980s the City of London has enjoyed a revival as the most important international financial centre. It benefited from its base in the European Union—the second biggest economy in the world. It also had a huge lead over other financial centres in key markets such as foreign exchange and over-the-counter derivatives.
But last week it emerged that since the start of the year Amsterdam has overtaken London as Europe’s main share trading hub. As the Financial Times put it, “so far in February there has been an average €8.7 billion (£7.6 billion) a day traded in the Dutch city, compared with €7.8 billion (£6.8 billion) on venues in London.
Last year London traded an average of €17.6 billion (£15.4 billion) shares a day and Amsterdam languished behind Paris, Frankfurt and Zurich.”
Then the news came about trading “euro-denominated swaps” in London. According to the Financial Times the share of this “$1.6 trillion-a-day global market that was a City mainstay,” had fallen from nearly 40 percent last July to 10 percent in January. This time New York was the biggest beneficiary, followed by Amsterdam and Paris.
The reason for this shift is obvious—Brexit. Or more specifically the inter-imperialist conflict that this represents between Britain and the leading capitalist states on the European continent. Even when Britain was in the European Union (EU), London’s financial dominance rankled especially because Britain stayed out of the euro.
Since the 2016 Brexit referendum the EU has been making a determined effort to displace London.
In principle Britain could negotiate “equivalence” with the EU. In other words it could win Brussels’ recognition that Britain’s financial regulations have substantially the same effect as the EU’s.
This shouldn’t be hard to prove because Britain was bound by EU regulations until the end of last year.
But the EU is dragging its feet, even though it has conceded equivalence to other financial centres such as the United States and Japan.
Brussels wants, in effect, to bind Britain to accepting changes in EU financial regulations. There is little chance of Boris Johnson’s government agreeing to this.
The fact that finance wasn’t included in the trade agreement tortuously concluded just before Christmas caused widespread anger in the City. But both the current governor of the Bank of England, Andrew Bailey, and his predecessor Mark Carney have been arguing otherwise. As Bailey put it last week, “a world in which the EU dictates and determines what rules and standards we have in the UK is not going to work”.
Behind this is the idea that by diverging from EU regulations, the British state can make London an even bigger global financial centre than it is now. It’s hard to tell how big a blow to this strategy Amsterdam’s revival is. “The euro share and derivative trading that has moved elsewhere is a tiny sliver of the global pie. None of my people are moving to Amsterdam from London,” one banker said.
But the ex-Bank of England economist Dan Davies writes in the Guardian, “Financial market trading is the ultimate case of increasing returns to scale—the more business you do, … the more attractive a place you are to do business. And the same dynamic works in reverse. When you get a negative shock to your market share, it also tends to be self‑reinforcing.”
Whoever wins, both London and Amsterdam represent bloated financial sectors that have been allowed to dominate the productive economy, increasing the polarisation between rich and poor. If the City finally did deflate it would be an opportunity to create a different kind of economy.