Bidding to be the new “City”

After the Brexit referendum made in june and facing the beginning of the negociations in march 2017, bets are on the table to decide which city will emerge as the best alternative to the London “City”. Amsterdam, Madrid and Frankfurt are included in the list and they are positively viewed. The pros and cons are evaluated and which are the real benefits for the city that will host companies such as investment funds or important multinational corporations.

While cities like Paris and Dublin are flirting with Goldman Sachs or Morgan Stanley, the real chances of both cities as alternatives are falling apart. Amsterdam, however, seems to be a good choice and there are some people that see it as a real alternative. Karl Guha, president of Van Lanschot Commercial Banking Group, clearly says that “finance is in the DNA of the Dutch” and Jan Paternotte, leader of the D66 party in Amsterdam’s City Hall, assures the city has the ideal infrastructure to be a financial and business center: because it has an airport that connects all Europe, Asia and America.

But then, are these arguments good enough to make it the European Financial Center? What about the planned measures in their banking policies? Here’s its weakness, since february 2015 The Dutch Law on Remuneration Policies for Financial Institutions was approved, setting a maximun ceiling of 20% on bonds paid to financial industry staff. In the rest of Europe this bonuses are limited to 100% of the salary.

Frankfurt is also playing its cards, while Germany is economically more stable and its financial center concentrates the representation of approximately 200 banking entities of the world; There are analysts who do not consider it appropriate that the European Banking Authority (EBA) is installed in the same city of the Eurozone where the European Central Bank is located.

Madrid stomps harder

José María O’Kean Alonso, associate professor of Economic Environment at IE Business School, says in his article “The opportunity of Spain before the Brexit” that the door to find a new project for a country has been opened and there is an alternative to “Release the burden that has avoided the EU and the Monetary Union from moving forward in the European dream. Now, they intend to try a forward leap towards banking union, fiscal alignment and political union, among a number of countries chosen”.

Dealing with this scenario, the alternative is, according to José María O’Kean, that Madrid and Barcelona should attract investment, talent and employment, aiming to become big financial and institutional cities.

To all of this we must add that, in terms of infrastructure Madrid is positioned with advantage. Kian Abouhossein, analyst at JP Morgan, understands that the Iberian capital is the best choice regarding commercial office availability to house the high tide of companies that would settle in the city. The numbers are clear: 16% of supply in Madrid, compared to 12% of places in the rest of the cities.

We have to say that the average rental price in Madrid is lower than in Amsterdam, Frankfurt and Paris. And to wrap it up with good ratings, Spain’s connection with Latin America would be positive, this implies that it could facilitate the connection between America and Europe in financial terms.

Who loses and who wins

It is clear that the Brexit marks a turning point in the economic development of the United Kingdom. The assessments are predictive and until the negotiation process begins and the tendency is evaluated, it will not be possible to accurately approximate the positive or negative implications.

In that case, José María O’Kean considers in Brexit: Nationalisms and antisystems that “the United Kingdom, or perhaps England without London and Wales, have surrendered the world’s largest market, to the economic space combined with the population and the highest purchasing power to move away from the countries integration with more consolidated democratic and social welfare systems”. It has already been stated, the impact of the referendum will depend on the negotiation process between the UK and the European Union.

The tour is just beginning. Negotiations will begin in March 2017, becoming the prophets of a priori disaster in these troubled times makes no sense. While the Brexit forces the UK to reconsider trade agreements, understanding that multinationals should look at other cities, it is also true that, according to the mechanism legally established by the European Union to start Britain’s departure, the road will take time negotiating.

In this case it is necessary to point out that:

1.- The United Kingdom has two years to negotiate a commercial agreement and it will continue benefiting from the single market until then; consequently, ensuring that there will be a sudden impact on trade is, at least risky.

2.- It is possible to negotiate agreements with countries with which the European Union does not have business alliances and therefore obtain economic benefits.

Next year will be, undoubtedly, so decisive for the UK which will begin to draw its route, as well as the cities that are now emerging as candidates. Undoubtedly a year of reconsider and that aims to evaluate the possibilities of growing as potential cities economically and commercially strong. Projections are nothing more than predictive scenarios, so it is necessary to wait for the dialogue to begin and to define assessments.

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