Following the decision of the British electorate to leave the European Union (Brexit), London’s air is permeated with anxiety. The financial metropolis fears to loose thousands of jobs – and not without merit. Switzerland may serve here as a template: outsiders, such as Switzerland, are not allowed to offer their financial services proactively on the EU single market out of their country (off-shore), while at the same time, passive acts are being suspiciously looked at by the EU competition and, whenever possible, interpreted as active. This can become very costly. Swiss banks solve this problem by offering their financial services on-shore (on-site), be it in London, Luxembourg or Frankfurt – main thing, out of a financial centre within the EU.
The financial services institutes operating till now out of London face a threat, that after Brexit’s completion, as outsiders, they may be subjected to rules of the game currently confronted by the Swiss financial companies. Dublin, under these circumstances, could become a solution. Not without a reason became Dublin the location for the European headquarters of US companies like Google, Facebook, Dell, Microsoft, Intel, Apple, Pfizer, and Johnson & Johnson. The benefits offered cannot be contested by any other European metropolis:
Dublin could, therefore, be a possible alternative for financial services institutes from London to continue offering their full financial services.
Currently the South of Europe remains under the spell of three critical events, each of them with very different impact on the financial markets: the terror in Nice, the coup attempt in Turkey, and the banking crisis in Italy.
The thwarted attempt by the Turkish army to disempower Erdogan affects merely the Turkish stocks and bonds. By far broader implications has the recent act of terrorism in France. On top of rising safety costs in the country and the deepening sense of insecurity among the population it is likely to alter, at least in the short run, travel and leisure habits. Furthermore, the political sentiments among the citizens have become more accentuated, thus, increasing the chances for extreme political options. Deepening isolation of foreigners (immigrants, asylum seekers etc.) will enhance the move towards the right in Europe.
The greatest impact on the financial institutes and, thus, on the financial markets could have the crisis in the Italian banking system. Due to the European banks’ weak capitalisation, rumours are being spread in the press about their serious vulnerability. Let’s be honest: non-performing loans amounting to one fifth of the total loan portfolio (Unicredit) are indeed scary. Looking at the reported equity capital, standing of Spanish banks is even worse; vide Santander, where 50 percent of equity consists of deferred taxes and capitalized goodwill (data provided by the Independent Credit View). Whoever sees the solution to the problem in support provided by the state overlooks two facts:
The announced excessive deficit procedure sounds reasonable at first glance. Neither Spain nor Portugal (the second “defendant”) has undertaken credible efforts to become compliant with the deficit limit of three percent. On the other hand, the proceedings amount to a farce. Except Denmark and Luxembourg not a single EU member has complied with Maastricht criteria.
– Written by Ralph Weidenmann
Your Wealth at a Glance.