Lord Green of Hurstpierpoint, Chairman of TheCityUK Advisory Council addressed TheCityUK Annual Dinner on Tuesday 4 November 2014
Chairman, Lord Mayor, your Excellencies, my Lords, Secretary of State, Ministers, Aldermen, Sheriff, ladies and gentlemen:
It is a great honour for me to follow in the steps of Sir Win Bischoff. I was delighted to be asked to be his successor, not least because I have seen TheCityUK get into its stride in recent years under his overall guidance, and through the strong leadership - first of Stuart Popham and now of Sir Gerry Grimstone. It is a very great personal pleasure to be working againth a number of old friends on the Advisory Council!
Getting TheCityUK going during recent years - thanks, it must be said, to the initiative of Alistair Darling and the vision of Win Bischoff - must have felt like launching a ship in the midst of a hurricane. But by any standards the launch was a success and the ship is sailing extremely well even though the seas remain turbulent. TheCityUK has established its credibility under the energetic leadership of Chris Cummings and is doing what it was intended to do: making the case for a vibrant, robust and successful financial and professional services sector, as essential to the health of the real economy of the UK, to its balance of payments and to the British brand internationally. Its work streams - just to point to three crucial examples - on the Shanghai Free Trade Zone, on Islamic finance and on the Transatlantic Trade and Investment Partnership – show the importance of its contribution to sustained success in London's strategic role on the world stage.
My main theme tonight, though, is inevitably the question of Britain's role in Europe, and the part the financial services sector can and must play in the debate about that role. This question of Britain's membership of the EU is surely the most strategically critical one facing us (and indeed the rest of Europe) over the next three years or so.
And we need to be clear about the predominant view of businesses - both in the financial sector and more generally in the economy. Research by TheCityUK, and survey after survey of businesses by others, show the same thing: a belief that Britain belongs in a reformed Europe. This is not a philosophical or romantic attachment, but a simple pragmatism, based not least on the view that the alternatives often proposed are fraught with serious difficulty and risk.
We all know that the EU is not working well. The full realisation of Europe’s social and economic potential has been deeply impaired by the financial crisis and a loss of global competitiveness. Growth has been unacceptably slow and unemployment, particularly of the young, is a major social issue throughout much of the EU. So if we say that Britain's place is in the EU, we need in the next breath to assert that reform is vital if the EU is to be successful in meeting these challenges and securing future economic prosperity for all its people.
In the immediate aftermath of the financial and economic crisis, the EU rightly focused on stabilising the financial system. Much has been done over the past six years to establish the regulatory framework necessary for a stronger and more stable system, which is clearly in the interests of all member states. But during the new mandate, the regulatory architecture that has been put in place will need considerable refinement to ensure it works to enable, rather than inhibit, sustainable economic growth. It is of paramount importance to get the balance right between growth and stability.
It is also essential for the EU to face outwards and recognise the overwhelming importance of flexibility and competitiveness in the global marketplace if we are to avoid marginalisation. We therefore strongly welcome the emphasis on jobs and growth, subsidiarity and better regulation, as well as the more rational and focussed distribution of Commission roles that has been put in place by President Juncker.
Above all, this means driving the implementation of a broader and deeper Single Market. For it is the Single Market which both underpins the economy of every Member State and can enable the EU’s ambitions for competitiveness, investment, jobs and growth to be realised.
And in achieving a Single Market which is competitive and fully engaged with the rest of the world, we believe that the financial and professional services have a vital part to play. They are essential in enabling investment and facilitating growth in the wider economy.
In particular, the development of an integrated and vibrant capital market across the EU is of critical importance. In sharp contrast to the US, the EU economy overall has been overdependent on bank financing for business investment and growth. The role of banks in lending to individuals and SMEs has therefore inevitably been a major focus of concern: but in the wake of the crisis, bank deleveraging and the shift toward more stringent capital requirements have constrained - and will probably continue to constrain - the availability of bank finance, especially for small businesses.
But there are many other ways in which a healthy and broad based financial services industry can provide the support essential for businesses in the wider economy to grow. In the new environment of tougher regulatory parameters for the banks, it is all the more vital that capital market financing solutions are properly developed as effective channels of credit and investment alongside traditional bank finance.
Given this environment, the new Commission’s strategy for a Capital Market Union - or single capital market in Europe - is highly significant and we strongly welcome it. The proposal offers the prospect of opening up sources of non-bank finance for Europe’s SMEs and start-up companies that will enable the firms in which most Europeans are employed to become more productive, grow their markets and employ more workers. In particular, it offers the prospect of better support and nourishment of start-up companies that can become gamechangers in the modern economy.
Capital markets are already working reasonably well for large corporations. But we need a single capital market which gives Europe’s SMEs and start-ups much better access to angel finance, venture capital, private placements and securitisation (including technology-enabled finance, such as peer-to-peer lending and crowd-funding), together with a vibrant IPO market. And the City as Europe’s financial centre has a central role to play in working with the authorities both in Brussels and in the member states to achieve such a single capital market. London’s capital market is a European asset that benefits the whole EU.
The importance of the Single Market in general and of a capital market union in particular is so great that the governance of the Eurozone must not be allowed to undermine it. A strong and stable Eurozone is in the interest of all Member States. But the principle of non-discrimination between Member States must be applied rigorously to financial services, so that capital flows, trading venues and clearing houses are not obstructed or disadvantaged. We believe that the necessary policy cohesion should be reinforced by a provision that non-eurozone Member States should have permanent observer arrangements at Eurogroup meetings.
Furthermore, because the Single Market is so essential to the EU's future, we also believe that further institutional reform is required – particularly in the European Council - to ensure sustained political commitment to and focus on the Single Market. We therefore think there is a case for a permanent chair of the Single Market in Council - as well as of the Eurogroup. These two innovations will surely take time to implement formally since they would require treaty changes: nevertheless, we believe that moves in this direction would be in the interests of the EU as a whole. And in any event, the Council should meet in Single Market format (replacing the diffuse and relatively ineffective Competitiveness Council format), to bring sustained focus on single market issues, in the way that the Trade Council format does for trade policy.
The UK is not alone in calling for a reformed EU: other Member States have produced reform proposals and it is in the interests of all Member States that the EU should work better. There is a ready appetite for dialogue on reform, and it is very clear that the rest of the EU wants the British to be fully engaged in the campaign for reform.
So what is to be done? For Britain, the answer comes in a simple phrase: stronger and more constructive engagement. It is not good enough to shout from the sidelines and treat Europe as something that does unwelcome things to us. It is not good enough to treat Brussels regulation as automatically undesirable, or to put forward demands just on the basis of British exceptionalism. The EU needs reform - radical reform - in the interests of the EU as a whole - which is in our interests.
And this is a message to ourselves as well as to government. Business needs to help government by influencing the public debate - by stressing for example the value of the single market in labour as well as in capital, goods and services. And in particular, we in the City need to up our game. For some years, the City Corporation has sought to engage with EU opinion formers through its Brussels office. TheCityUK has played an increasingly significant role through commissioning and publishing authoritative research. It is also developing a pro active dialogue with counterparts in other member states - in France, in Italy, in Ireland, and we hope to start similar dialogues in Germany and the Netherlands soon.
But more must be done. We need to be more visible and cohesive in Brussels, not only in engaging with the Commission but with the increasingly influential Parliament. At present, the respective roles of TheCityUK and the City of London Corporation are confusing to many, both in Brussels and within the financial community. We intend to address this challenge, with a view to ensuring that we can combine and synchronise our efforts, and field an 'ambassadorial' presence that befits the importance of the financial sector - to London, to the UK, and to the EU as a whole. There is an urgency about this, and TheCityUK and the Corporation aim to work together to get this launched soon in the New Year.
Ladies and gentlemen, the times continue, as they say, to be interesting. And we are approaching what might be a strategic fork in the road, where a wrong turning could be highly damaging, not just for our industry, but for the real economy and indeed for Britain as a whole. What is clear is that the potential from getting this European engagement right is enormous, and that we don't have time to let the grass grow under our feet. What I can promise is that such a programme of European engagement is right at the top of the to-do list of TheCityUK, and will remain so for the foreseeable future.
And may I now propose the Civic Toast to The Lord Mayor, Sheriffs and the City of London Corporation.