Davos Finance Chiefs Urge U.K. to Stay in EU for EconomySimon Kennedy
British finance executives urged the U.K. to stay inside the European Union for the good of its economy after Prime Minister David Cameron paved the way for a referendum on continued membership.
As the World Economic Forum’s annual meeting got under way in Davos, Switzerland, executives from Standard Chartered Plc to Prudential Plc said remaining in the 27-nation bloc was in the U.K.’s economic interest. That message was dovetailed with an acknowledgment that the crisis-stung euro area’s own governance rethink justified British demands for a review of relations.
“The U.K. needs to remain very much part of the EU, but I can completely understand why Prime Minister Cameron thought it necessary to offer the people a referendum,” Peter Sands, chief executive officer at Standard Chartered, told Bloomberg Television’s Francine Lacqua in Davos. “Europe is changing and as the biggest country in Europe outside the euro zone its relationship is going to change.”
With about half of U.K. exports heading to EU neighbors and London serving as the region’s financial hub, companies have an interest in the U.K. sustaining ties with the rest of Europe. Cameron will have a chance to outline his strategy to the world’s financial elite when he speaks in Davos tomorrow.
Describing British backing for the status quo as “wafer thin,” Cameron said today voters will have their say by the end of 2017, if he’s re-elected in two years and once he has negotiated a return of some powers to the U.K. He said that he wants his country to stay in the bloc.
“For the business sector in general, the long-term interest of Britain is in the EU,” Tidjane Thiam, CEO of Prudential, Britain’s biggest insurer by market value, said in an interview. “The EU needs to be reformed, there’s a lot of frustration around, that debate needs to happen and long-term it’s good for Britain to be in the EU.”
The case for membership was made in a report last week from economists at Citigroup Inc. They estimated 50 percent of the U.K.’s goods shipments and 38 percent of services exports went to EU countries in the first three quarters of last year and that exports account for 15 percent of U.K. gross domestic product. By contrast, the EU relies on trade with the U.K. for just 2.5 percent of GDP.
“An exit would be a bad thing and a lose-lose situation for the U.K. and EU,” said Michel Petite, a lawyer at Clifford Chance and former head of legal services at the European Commission. “A U.K. at the fringe of the EU would fare less well as an optimal investment site.”
Quitting the EU could undermine the U.K.’s status as the world’s third-largest magnet for foreign direct investment given a chunk of the $1.2 trillion that entered in 2011 was likely sent there as EU membership guarantees access to the continent, Citigroup said. To attract the same amount outside the EU, the population would likely have to suffer lower wages or a weaker pound to sustain the same amount of investment.
“The British economy is highly interdependent with the rest of Europe,” John Nelson, chairman of Lloyd’s of London, the world’s oldest insurance market, said in an interview in Davos. “It’s very important we’re there. My guess and hope is common sense will break out and we’ll stay.”
The U.K. had a 17.6 billion-pound ($28 billion) trade surplus in financial services with EU countries in 2011, according to research by TheCityUK, a finance industry lobby group. About $868 billion of euros are traded every day in the U.K. as of April 2012, or about 40 percent of all euro foreign exchange trading, according to the group.
Uncertainty caused by the prospect of a referendum on Europe might be detrimental to the City, said Mark Boleat, policy chairman at the City of London Corporation, the financial district’s local government.
“London’s position as Europe’s leading international financial and business center is crucial to sustaining jobs and growth not just in the U.K. but across the continent,” said Boleat. “Uncertainty over this relationship with Europe risks making the U.K. less attractive as an international centre across many industries.”
Douglas Flint, chairman of HSBC Holdings Plc, Europe’s largest bank by market value, said “it’s important that the product of this process is a stronger Europe with Britain at its heart.”
Still, Alexander Leitch, chairman of British United Provident Association Ltd., the biggest U.K. private health-insurance provider, said Cameron was right to call a referendum. “It confronts the issue,” Leitch said.
The U.K. is also under pressure from the U.S. to stay put.
“A strong Britain in a strong EU is what I think is best for Britain, Europe and the United States,” U.S. Undersecretary of State Robert Hormats said in Davos.