Wednesday, November 11, 1998 Published at 08:19 GMT
Frankfurt vs London: The battle for supremacy
Can London remain at the top of Europe's financial league?
For hundreds of years London reigned supreme as Europe's financial capital.
Its dominant position in dealing in anything from foreign exchange to stocks and shares has never been in doubt.
The launch of the euro has seen the creation of a European Central Bank (ECB) that will set monetary policy across all 11 EU countries that have chosen to join up.
Instead it has its headquarters in Germany's financial centre Frankfurt, which is now a serious pretender to London's crown.
A recent survey by property consultants Healey & Baker indicated that almost half of all senior executives in Europe believe Frankfurt could supersede London as Europe's financial capital.
So will the UK's decision not to adopt the euro in the near future leave London out in the cold?
Or will London be able to fight off the threat from Frankfurt and continue to eclipse continental capitals of finance?
The cranes have been towering over Frankfurt as the city prepares for the euro. Builders work furiously to construct new offices for business newcomers.
So what are the advantages Frankfurt holds in its head on clash with London?
Frankfurt has the potential to become the financial hub of the 'eurozone' and is likely to take business away from smaller financial centres. Michael Lewis, an economist with Deutsche Bank and a specialist on the euro, points out that his own group has scaled back trading rooms in places such as Paris and Madrid to concentrate its efforts on Frankfurt.
A wave of privatisation is likely to spread across Europe as governments seek to raise money by selling off assets to the private sector. That will create a large amount of new business for financial institutions. As most of the privatisations are likely to take place in France and Germany, Frankfurt is well positioned to pick up a large part of this business. Analysts also believe that German companies will begin to use equity markets more often to fund expansion, therefore creating more work for banks.
Best of British
However all is not lost for London.
Even though the birth of the euro has been anticipated for some time, financial institutions have continued to flock to London.
Significantly none of the major banks have so far announced plans to jump ship to Germany.
And both the Bank of England and the Stock Exchange claim that London is well prepared for the euro. Both businesses and financial institutions have invested heavily in ensuring their computer systems will cope with the change.
Indeed London still holds several aces in its ongoing battle with Frankfurt.
Supporters of London dismiss claims that the creation of the ECB threatens London's dominance. "In the US, the Central Bank is in Washington and all the power is in New York," Mr Lewis pointed out. While Ms Royle said: "I think (the ECB's influence in Frankfurt) is a red herring which I can't see why logically it will make any difference at all."
London could actually benefit from the euro. "The view here (in London) and as I understand it in the European Commission is that the financial services industry in the UK ... is probably best prepared for the introduction of European Monetary Union than anywhere in the Europe.This is a potential opportunity, not a negative," said Ms Royle.
Bruising battle ahead
Nevertheless London has a battle on its hands to defend the £20bn worth of financial revenues it currently brings into the UK.
"The problem is that London has such a huge dominance in markets that its share can only go down," said Mr Lewis.
Whether London can hold on to the vast majority of financial business that now flows in from around the world depends, in the short term, on how well it adapts to the introduction of the euro.
But the City's long term security probably depends on whether the UK signs up to join the euro.
If the UK eschews monetary union, London runs the risk of being ostracised from the European financial community.
"London may lose out if it remains out (of European Monetary Union) for a very long time.
"If it looks like 2010 then ... there maybe a risk that London would become very peripheral. But if it is only three or four years then I think that is manageable," said Mr Lewis.
In other words banks are likely to hang on before they take the plunge and move lock, stock and barrel to Frankfurt.
Many will also bide their time in order to see if the euro turns out to be a success.
Frankfurt will not topple London from the top of Europe's financial league overnight.
But in the long run it could still poach a large amount of business from the UK.