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The value of Europe’s international financial centres to the EU economy

06 July 2011

Practitioner policy paper

Download 'The value of Europe’s international financial centres to the EU economy' (1mb)

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Download 'The value of Europe’s international financial centres to the EU economy - French translation' (701k)

Commissioned by the City of London Corporation and TheCityUK on behalf of the International Regulatory Strategy Group, and authored by Europe Economics, this practitioner policy paper explores the clustering of European financial centres – focusing primarily on Amsterdam, Dublin, Frankfurt, London Luxembourg, Madrid, Milan and Paris – and analyses the social contribution of the financial sector to households, business, and government.

Of the eight major International Financial Centres (IFCs) in the EU, London has the broadest cluster with specialisms ranging from international banking, to fund management, and maritime finance. Each cluster however has its relevant areas of specialism, making a key contribution to their host city’s output and to national GDP, as well as accounting for a combined total of 800,000 jobs, around an eighth of EU financial services employment.

The financial sector in general and IFCs do however make a far broader contribution beyond GDP and employment. Their main social contribution is in the services they provide to consumers, corporates and governments; ranging from the issuances of bonds that enable business innovation to flourish, to enhancing individuals’ standard of living and long-term security through cash-flow management and household insurance.

The report highlights the benefits that the financial sector and IFCs bring:

For society as a whole:

  • The payments system, whether it’s households or firms paying bills, or individuals receiving their wages or withdrawing money, has evolved so that 97% of monetary payments now take place via the financial system. The social value to society of using money is enormous allowing us to convert our work and assets into money and thence into the things we want  to buy, rather than our needing to barter;
 

For households:

  • IFCs provide opportunities for employment and career development across the EU;
  • Savings, investment and loans are a critical provision for households whether it’s a pension to support themselves after retirement or a loan to enable further education. Pensions funds for example use IFCs as key sites for investment, attracted by the diversification of investment and the matching of maturities of assets and liabilities that it would be harder to achieve in the absence of IFCs;
  • Insurance and risk management is also an important function for households and IFCs play a key role in stimulating innovation to help people insure against new types of risk such as those associated with climate change.
 

For firms:

  • IFCs play a key role in capital raising for investment. Firms raise funds in a number of ways, especially by selling shares and corporate bonds, and taking out bank loans. Some €280bn was raised, for example, through IPOs on European stock exchanges between 2002 and 2010;
  • Speculation, often misunderstood, also adds social value by identifying strengths and weaknesses in assets that others have missed. This can provide an early warning to the management of companies that their business is in trouble and give them time to turn things around. If a speculator has got it wrong, there are usually many alternative investors in an IFC who are willing to lend.
 

For government:

Governments raise debt through the financial sector allowing them to avoid sudden tax rises, sudden spending cuts, or printing of money in an economic downturn. The value of bonds outstanding in the eight international centres totals €4.7 trillion.

Published:
30 April 2012
Last Modified:
31 May 2012

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