France and Germany are continuing a heated battle over the relocation of banks from London, as Brexit talks continue to throw uncertainty on the country’s financial sector.
As a more established European financial centre, Frankfurt currently holds a slim lead when it comes to statements and guarantees of intent from banks looking to relocate.
However, the election of former banker Emmanuel Macron as French President has upended expectations of German financial dominance. Macron and his finance ministers have already announced a suite of reforms for the French financial sector.
Macron’s key objective is to lower the rate of corporation tax steadily through his term in office, from the current 33% to 25%. Finance Minister Bruno Le Maire has also announced plans to end the country’s tax on financial transactions starting in 2018.
Some significant actions have already been taken. Labour costs have been reduced as part of Macron’s broader labour reforms, and efforts have been made to build more international schools around the country, catering to the children of expatriates.
Pressure has also been applied to French financial institutions in London. Senior staff at French investment banks have been encouraged to return to France following Brexit, with insiders suggesting that tax breaks have been informally proposed.
Indeed, much of the early lead for Frankfurt can be put down to the patience of French banks in London. As they already have EU licences from existing European headquarters, the moving process will be quicker than for other institutions, such as American banks.
As a result, France’s largest financial institutions - including BNP Paribas and Société Générale - have not yet outlined firm plans. Both could reasonably be expected to move some of their staff, particularly in the event of a hard Brexit.
British banks too are likely to make similar moves, in order to stay in touch with the European market. HSBC has already committed to moving 1000 staff to Paris in the event of a hard Brexit, offsetting the loss of its European passporting rights.
It remains to be seen what the eventual outcome of Brexit is, particularly in regards to the financial sector. The omens are not particularly good, however, with the European Banking Authority already being relocated to Paris.
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