It's a tantalizing image: Paris rolling out the red carpet to financiers escaping London after a referendum that shuts Britain out of the common market. It's one French Economy Minister Emmanuel Macron outlined in an interview with the Financial Times on Thursday.
It's also a real possibility: HSBC has threatened to move 1,000 investment bankers there if Britain withdraws from the EU. But before London's banks heed Macron, they should pause -- regardless of their views about the merits of Brexit.
At first glance, Paris's pitch is tempting. Mercer's quality of living ranking, which tracks everything from housing and transport to political stability and law enforcement, puts the French capital ahead of London -- but only just. Paris is at number 37 and London is at 39; Vienna and Zurich are the top two and Baghdad is the worst.
The cost of living is lower in Paris. London is the most expensive city in the world in which to live and work, according to Savills, which puts the combined cost of residential and office rental at $112,800 per person per year. Paris is a third cheaper at $78,200.
Bankers cost less and earn less in France. Data from salary benchmarking website Emolument suggests London-based managing directors earn almost twice as much than those in Paris. Would staff in Britain really be willing take a pay reduction to move?
The French capital also lacks global clout and the network effect of a specialized wealth-management hub like Zurich or fund-friendly Luxembourg. While it has strengths in savings and investments (it has the biggest share of insurance and fund-of-funds assets in Europe, according to PwC) Paris lacks critical mass in lending and trading, where London and Frankfurt dominate.
The French capital is simply smaller. There are about 346,800 finance industry jobs in Paris and its suburbs, according to industry figures cited by Les Echos, compared with 360,000 in Greater London and another 369,400 in related fields like accounting and consultancy, according to TheCityUK.
While Paris has lower costs, the business benefits are fewer: it's ranked 37 among global financial centers according to consultancy Z/Yen, which measures cities according to regulation, taxation, talent pool, reputation, infrastructure and overall financial sector development. That's lower than Montreal, Melbourne and Amsterdam, which has seen a boom in high-frequency trading firms like Flow Traders. London, by contrast, has the top spot.
Then there's the cost of hiring and firing in France. The OECD's measure of tax burden on labour income, which includes not just income tax but also social security contributions, puts France not just higher than the U.K on every measure but well above the OECD average as well.
To be fair, the current government is trying to tackle this: Macron is leading the charge to overhaul French labor laws by gutting the 35-hour working week and making it easier for companies to shed jobs while limiting severance pay. But there's a long journey ahead.
Don't expect there to be much of a big change to French fortunes anytime soon. Opinion polls suggest Britain is likely to remain in the EU, and even the French government is trying to persuade English voters of the merits of remaining inside the common market.
But if Britain really were to leave the EU, other European capitals like Frankfurt and Amsterdam are be bound to compete aggressively against Paris in attracting financiers. Fragmentation would be a more likely outcome than French hegemony.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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