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When the UK left the European Union in January 2020, it marked the occasion with a commemorative 50 pence coin and a Whitehall light show. The mood today is closer to funereal than celebratory. A regretful population is mainly seeing worse inflation, declining public services and a potential recession — none of which was promoted on the side of the campaign bus. London Mayor Sadiq Khan is among the few politicians to break “the vow of silence” and say Brexit isn’t working; the Bank of England also sounds gloomy.
The rest of Europe is no economic picnic either, of course. Yet Brexit’s anniversary feels rather different from the continent, where some gains are being eked out to offset the pain of losing a big chunk of EU economic, trade and military clout. Just a few days after Khan’s warning that the City of London was being hit by a “loss of trade and talent” because of Brexit, London-based hedge fund Chenavari — founded by a French banker — cut the ribbon on its new Paris offices.
Speaking from those new digs close to the Arc de Triomphe, Chenavari’s Paris head Stéphane Parlebas tells me this expansion is not down to the whip-cracking of regulators. Brexit and Covid have made it more attractive to be closer to local institutional investors, he says. And UK political messes like the “Trussonomics” budget debacle, which ushered in the country’s fifth prime minister in six years, haven’t helped. “The market reaction showed the UK’s error was imagining that Brexit could unleash a European `tiger,’” he says, echoing the economic growth miracles associated with globalization in Asia or Ireland.
The leaking of jobs and talent from London is picking up pace, in other words. Data for 2021 from the European Banking Authority shows a jump in the number of top-paid finance pros in the EU, part of over 7,000 post-Brexit job moves tracked by EY. In Germany, where JPMorgan Chase & Co. is planning a new digital bank, more top bankers have been added in six years than in the UK. Crucially, non-banking activities are also following suit: Millennium Management and Citadel LP are among hedge funds expanding in Paris. The end of free movement has kept more young talented workers on the continent, while new research estimates it has led to a net loss of 330,000 workers in the UK as of September.
None of this has created a full-fledged replacement for the City yet, which remains preeminent despite eroding market share in some euro-denominated trading, according to a December survey. But what’s increasingly clear is that the Brexit scramble to build Singapore-on-Thames has served to lay the foundations for multiple hubs, with Paris having a more decent-long term chance than most as numerous French expats trickle home. The Conservatives have failed to find easy red tape to cut too, and in the meantime Amsterdam share volumes and Paris’s stock market capitalization have both eclipsed London’s. Tax breaks have helped, though there have been some unwelcome London-style side-effects as real-estate froth also crossed the Channel.
Beyond Brexit, other factors are weakening London’s network effects. New ways of working remotely during the pandemic have made the financial sector more open to outposts on the continent, especially with the rising cost and friction of crossing the Channel. What seemed inefficient in pre-Brexit days now offers some opportunities. Economic historian Charles Kindleberger — famous for his work on financial bubbles — presciently noted in the 1970s that for all the economies of scale that financial centers bring, they sometimes bring negative effects such as information bottlenecks or cost pressures.
These are early days in a multi-decade story. It’s not all good news for the EU — there have also been missed opportunities. While Brexit has allowed Paris and Berlin to steer the bloc into more integrationist continental waters, improving the EU’s image even inside the UK, financial markets remain an after-thought. The EU is still 27 different markets and regulators, not one single capital market. That fragmentation is a brake on growth; both Europe and the UK have seen their share of capital-markets activity weaken relative to the US and Asia. It also fosters the kind of in-fighting that can create financial instability as competition for post-Brexit jobs sees some lax attitudes to ensuring sufficient staffing levels and capital also make the move, according to pan-European regulators.
So while the UK’s talk of British “ingenuity” or “animal spirits” rings a little hollow on this Brexit anniversary, the EU hasn’t fulfilled its own ambitions yet. There’s no Brexit tiger, but the continent is living up to what resembles bear-like behavior — long stretches of hibernation interspersed with crisis management. With social unrest brewing and protectionism on the rise, the danger is that Brexit’s legacy becomes the “lose-lose” the EU’s negotiator Michel Barnier expected it to be.
More From Bloomberg Opinion:
• Labour Wants to Fix Brexit. Good Luck With That: Therese Raphael
• Britishvolt Is a Monument to Empty Hype: Matthew Brooker
• London Doesn’t Need a Regulatory Reboot: Paul J. Davies
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.
More stories like this are available on bloomberg.com/opinion
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