Friday, 10 February 2017

The Battle for Financial Supremacy after Brexit

Even though the U.K. Parliament has not yet formally signalled its intent to the leave the European Union, the understanding that they will is causing fervent speculation in a number of different areas. This is arguably because of the almost-common understanding that leaving an economic and political bloc must result in seismic shifts, simply owing to the very nature of things. So, in this post the focus will be on this shift, with a specific reference to the notion of power. At this current stage of proceedings we are seeing conscious strategies coming into focus as the battle for financial supremacy in the region begins to intensify, and it is these strategies that can detail for us the likely course of action that the different parties will take. In renegotiating and reorganising, the U.K. is currently experiencing what is, essentially, an identity crisis; it has long been dependent upon its Financial Services sector, and has been recognised, globally, as being a leading financial powerhouse – it is rightly regarded as the ‘Gateway to Europe’. Yet, the nationalistic uprising and subsequent retreat from the economic bloc, as signalled by the referendum result, has opened the door for a Country to take over the role as a regional powerbase, and Germany is primed to take advantage.

There are a number of events, and murmurings, which may allude to this power shift. Yet, there are, perhaps, two elements in particular which are telling. Firstly, it was reported towards the end of 2016 that Goldman Sachs, a major global players in the financial services sector, is considering moving its considerable base in London to other centres, most notably New York and Frankfurt, in light of Brexit. Then, only in the past few days, the Bank has closed its London-based Hedge Fund, with its initial record-setting £7 billion capitalisation, and relocated its staff to New York. The official line is that the internal restructuring, based upon the Managing Director Nick Advani stepping down, was scheduled and is not in response to Brexit. But, these events match to the comments of an Executive Board Member of the German National Bank, the Bundesbank, which should force to assess, much more closely, the viewpoint of Andreas Dombret.

The German Banker has been quoted in almost all of the leading British news outlets today because of the headline-grabbing sentiments he offers. The clearest line to come out of his interview is his warning that London could ‘lose its “gateway to Europe” status’ in light of Brexit. He goes on to suggest that not only could London lose this status, but that it was ‘likely’, which may allude to the understanding in Berlin that certain steps must now be taken so that Germany, and the European Union moreover, are in the most advantageous position possible in the post-Brexit environment. However, the question is ‘what is the motive’ for such a high-level official to be making such a public declaration? It could be one of two things, arguably.

Firstly, it may be the case that Germany is looking to cement its dominance over the EU, which is considerable. The ability to add London’s financial service portfolio to its ranks would see Germany, by way of Frankfurt, become a leading financial powerhouse, rivalling New York and Tokyo. This is clearly an incentive, and would also serve to protect Germany from the aftershocks of any collapses within the E.U., for example the potential exit of Greece from the EU (or ‘Grexit’, as it is colloquially known). This sentiment on ‘taking advantage’ and progressing is one potential motive. But, there is another, more realistic one. Guy Verhofstadt, a leading Brexit negotiator for the European Union, suggests that the sentiment is actually based on protection. He suggests that with the political situation in the United States, the aim of Russian President Vladimir Putin to ‘divide the European Union’, threat of jihadism, as well as the potential scenario where the E.U. does not survive Brexit (and maybe ‘Grexit’ simultaneously), Germany must seek to maximise its position in order to protect itself. Furthermore, this sentiment of needing to protect oneself is evident when we consider that the French, who are ‘partners’ with Germany, are preparing for a ‘battle’ with Germany, with the aim of seeing Paris become the financial services capital of Europe, instead of Frankfurt. This infighting only serves to add to the paranoia and yearning for protection.

Ultimately, we can see that the much-repeated interview of Andreas Dombret had a specific aim to it, and this can be understood in philosophical terms. Michel Foucault, in writing about power, and its relationships, understands power in terms of ‘strategies’, whereby people act upon one another to make others act in turn. This can be seen in Dombret’s words, particularly when we understand that the marketplace will be paying attention to the viewpoints of an Executive Board Member of the Bundesbank. Yet, this understanding comes with a more advanced understanding, at it is this advanced understanding that should show us that the future post-Brexit could be extraordinarily hazardous for this era’s society. Foucault’s understanding continues by declaring that very rarely do our attempts to influence, based upon the power relationships that exist at any given time, have the desired effects – and, even when they do, we still have very little understanding upon the effects on others associated with that relationship. This can be translated simply: the actions being taken currently within the political and financial spheres are particularly short-term. Nation states are jostling for position with their own protection in mind, whilst leaving very little thought for the consequences of their decisions. This is now playing out in the United States, and it is feared here that the exact same dynamic will soon be at play in Europe. This fear is based upon one overriding sentiment: we should fear ignoring the past; Europe still bears the scars of what happens when Nation States act in a solely self-interested manner, and many Nations across the globe can attest to the losses that are inflicted when those consequences come to bear.

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