February 13, 2014 / 6:47 PM / 4 years ago

EU exit would cost Britain its treasure, City warns

Britain's Prime Minister David Cameron leaves Number 10 Downing Street to attend Prime Minister's Questions at parliament in London February 12, 2014. REUTERS/Neil Hall

LONDON (Reuters) - A British exit from the EU would torpedo London’s position as a world financial capital by pushing money and talent to the United States and Asia, a lobby group for powerful banks and money managers said on Thursday.

Prime Minister David Cameron has promised to renegotiate the terms of Britain’s European Union membership and hold an “in-out” referendum if re-elected in 2015, raising fears the world’s sixth-largest economy could quit the club it joined in 1973.

But in a sign the City of London may be nervous about the possible outcome of a vote, the chief executive of lobby group TheCityUK cautioned that Britain’s political and economic clout and its treasure would be at risk if voters chose to leave.

“The danger from a Brexit is that we lose our place in the world,” Chris Cummings said in an interview at the Reuters Euro Zone Summit. “The City wants to stay in the European Union. We think that’s better for the UK economy and we think it’s better for Europe to have the UK as a member.”

London, rivaled only by New York as the world’s financial capital, dominates the $5-trillion-a-day foreign exchange market, trading twice as many dollars as the United States and more than twice as many euros as the entire euro zone.

Cummings said that although the immediate impact of a British exit would not be removal vans whisking traders and fund managers to rival cities, there would be a long-term seepage that would eventually dry out London’s capital markets.

“We would not get Pickfords vans arriving in fleets across the city to take bankers to Paris or Frankfurt but we would see is a slow, steady but increasing drift away from the City,” he told Reuters.

Most institutions in the City of London financial district support Cameron’s calls for changes to the way the 28-country bloc is run, and want more British say on matters affecting financial services, Cummings said.

“We want reform but we want to reform from within the club,” he said, adding that Britain should get better at pitching its candidates for the top jobs at the European Commission.

BITTER DIVORCE?

Opponents of deeper European integration say it has been imposed by out-of-touch bureaucrats whose social policies will slow the EU’s economy until it lags the rest of the world.

But a growing number of banks, including Goldman Sachs, Citi and JPMorgan, have warned about the risks of a possible British exit, known as a ‘Brexit’.

Cummings used the examples of once-mighty European financial capitals such as Venice which had withered to warn that an exit vote would represent a geopolitical and financial crossroads.

“The UK does phenomenally well because we are the world’s leading financial center: it underpins our military role, our wider diplomatic role and it makes us more than a small island off the coast of mainland Europe.”

Slamming the door could lead the bloc to retaliate with measures intended to deter other member states from following Britain, whose economy accounts for about 15 percent of European gross domestic product.

“The thing that worries me in any talk of a Brexit is this sense that it could easily happen as if both parties would shake hands warmly and agree to differ. I have known a few friendly divorces but I have known far more acrimonious ones,” he said.

“I would expect a punishment premium: there would be an exit and a cost to that exit.”

The options for a Britain outside the EU may also be less rosy than some proponents believe, he added.

“Like Jersey with nukes? The City is too big to be an offshore financial center, and if you want to be one you have to be an offshore center to a part of the world that wants you to be its offshore financial center.”

Editing by Catherine Evans

Our Standards:The Thomson Reuters Trust Principles.
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