Op-Ed in The Times of London: The City Knows an EU Exit Spells Disaster

The following op-ed by Michael Sherwood and Richard Gnodde, co-CEOs of Goldman Sachs International, appeared in The Times on 14 February 2013:


Banks won’t disappear from London overnight, but they will over time if Britain votes ‘no’ 

After a long and delicate debate EU leaders agreed last week to a deal on the next seven-year budget. The agreement underscored the equally delicate debate over Britain’s place in the EU.

The importance of that relationship can be explained in two figures: half of all British goods exports, and approaching 40 per cent of its service exports, are sold within the EU. This highlights how inextricably linked the performance of the British economy is to the rest of the EU as well as the reason why businesses are concerned about the future of the relationship.

Britain’s voice is amplified when it works with its European partners. The best example of this is the financial services industry. London is the true capital of European finance. As a large British employer with about 6,000 staff, our location in London allows us to use the professional expertise in the City to serve broader European and global markets. And from discussions with peers and clients we know our situation is far from unique. Large international and European companies see a Britain divorced from the EU as a much less attractive place. Threats to British involvement in the EU are threats to British business.

Those threats would manifest themselves over time, not overnight. It takes years for businesses to move headquarters and for other cities to build the houses, schools, office space and services needed to handle a new cadre of workers — as it did for London. It would begin with a decline in investment and hiring as London suffers relative to cities such as Frankfurt and Paris. As an example, consider the effect that the construction of Canary Wharf has had on the City of London. When it was built, few thought it would become the hub for financial services but over time it has superseded the City. In fact, Goldman Sachs is one of the few major banks still based in the City.

As we built our business in London over the past 25 years, so did fund managers, private equity firms and hedge funds as well as large numbers of professional services firms. These companies come from across the world, but they all consider the UK as home, and their combined effect on London has been significant. London responded to the influx of investment and jobs by making itself a top-quality location for working and living. It offers business a strong legal and regulatory framework, an attractive location for a global talent pool, and facilities that make London a successful business hub.

The emergence of the euro in 1999 was the pivotal moment in the acceleration of the capital markets in Europe and the UK was its biggest beneficiary. No longer did banks compete in fragmented domestic markets, but in one large liquid market centred in London. A similar opportunity presents itself now. As bank lending shrinks, companies are increasingly seeking to raise money in the capital markets. London is the logical centre of this activity but that opportunity could be lost if Britain leaves the EU.

This is just one example of how the benefits of EU membership are in danger of being underestimated or ignored. But that does not mean that the EU, with Britain as part of it, does not need to change. It needs to do more to support growth, innovation and job creation and we believe it will. Last week’s budget agreement shows that the EU can be flexible and pragmatic. After all, the EU needs economic growth as much as anyone.

Europe’s other pressing need is to stabilise the eurozone. A disorderly disintegration of the currency is in no one’s interests. It is now widely understood that making the euro work entails deeper fiscal, financial and ultimately political integration among participating countries.

There is an obvious tension between supporting greater integration in the eurozone, while retaining full access to (and influence over) the wider single market. This tension is not insurmountable. Eurozone countries, including Germany (who together with Britain forced the cut in the EU budget), are eager for British involvement in resolving their problems. They welcome an active, economically liberal and business-friendly British voice to ensure that integration does not come at the expense of economic dynamism, or the openness on which that dynamism depends.

But an inward-looking Britain is in danger of missing the opportunity to shape the EU’s future in its own national interest. It is a mirage to believe that the rest of the EU will allow Britain to cherrypick from the EU’s activities. Nor will Britain be allowed to hold the process of deeper euro integration to ransom for its own narrow interests. Britain’s biggest mistake would be to force Germany to choose between keeping the UK in the EU and stabilising the eurozone. Inevitably, Germany would choose the latter. And the accidental British exit from the EU that British business so fears may be the result.