Economy

In era of change, Frankfurt poised to claim global finance crown

With Brexit roiling London, ECB home Frankfurt well placed to steal its crown as world financial hub

Aysu Bicer   | 13.11.2019
In era of change, Frankfurt poised to claim global finance crown A general view of Frankfurt in Germany on November 11, 2019. With the dragged-out Brexit process eroding London’s position more each day, Germany’s claim to be the financial capital of Europe is rising, and especially perhaps its central city of Frankfurt. ( Aysu Bicer - Anadolu Agency )

FRANKFURT

With the dragged-out Brexit process eroding London’s position more each day, Germany’s claim to be the financial capital of Europe is rising, and especially perhaps its central city of Frankfurt.

Frankfurt, as the financial capital of the European Union, is entering an exciting new era full of unknowns as the European Central Bank has a new head, Christine Lagarde, who formerly ran the IMF, now stepping in the shoes of Mario Draghi.

Lagarde's new position is considered important for the changing missions of central banks across the globe, especially after the 2008 global financial crisis, focusing on strategic communication and coordination with all other economic institutions rather than implementing strict monetary policies.

Although by background alone she may not seem the best option for the ECB, she has a skill set that is hard to ignore, including an international reputation and a keen understanding of diplomacy.

Anadolu Agency reporters were among those who were invited to an ECB seminar last week in Frankfurt. Journalists from around the world attended the event, and all had one question on their minds: Whether the ECB will become more vital than ever to the European economy.

The seminar was conducted with rules to be used as a background only, so the current piece will cover the discussion in general terms.

ECB's rising political importance amid Brexit

The ECB is the central institution of the Economic and Monetary Union and has been responsible for handling monetary policy for the euro area since 1999.

Currently 116 banking groups in 19 countries are under direct ECB supervision, and almost 82% of the euro area banking assets are subjected to direct bank supervision.

As a banking supervisor, the ECB also has an advisory role in assessing the resolution plans of credit institutions. This is one reason why the bank's overlapping roles create potential conflicts of interest.

Since the 2008 financial crisis, many analysts have criticized the bank's policies, pointing to a lack of accountability, and so making democratic inquiry into ECB policymaking more critical than ever.

As Britain voted to quit the EU, plans are being made for several financial institutions to move from the City of London to Frankfurt’s central Mainhattan business district. (The word combines the name of the Main River, which snakes through Frankfurt, and its New York-like cityscape.)

Although Britain was never a part of Europe’s single currency project, EU financial decisions always had an effect on it via trade and taxes.

The euro’s persistent problems as well as the latest developments in the U.K. have put the ECB at the heart of potential conflicts of interest.

The ECB has long relied on monetary policy, and a question has emerged in the wake of recent developments: How the bank will manage to position itself in a new era where more active fiscal policies are expected.

It seems an answer may prove elusive during the period of uncertainty now prevailing worldwide.

One thing, however, is clear, namely that the ECB, under Lagarde’s rule, will focus on designing macroeconomic adjustment programs and completing the Banking Union, which was initiated in 2012 in response to the euro zone crisis.

The aim of the Banking Union is to transfer the responsibility for banking policy from the national to the EU level in several countries of the EU, watch out for fragility in banks in the euro zone, and diagnose the circle between credit conditions for these banks.

As the political landscape is changing, it would be more challenging for the ECB to develop more constructive governance. But one could say it will try to diversify its approach toward solutions tackling shortcomings in the banking system in the euro zone.

U.K.-based banks will have moved around €1.3 trillion ($1.4 trillion) worth of assets to the euro zone by the time the U.K. leaves the bloc -- if it happens -- according to Andrea Enria, the ECB supervisory chief.

In this case, the ECB will take a wait-and-see approach amid Brexit uncertainty, putting the two main initiatives of the Banking Union -- the Single Supervisory Mechanism and Single Resolution Mechanism -- in a brighter spotlight than ever before.

Financial metropolis: Frankfurt

The German city at first sight strikes one as a classical European city with old train stations, retaining its traditional cultural heritage.

But a walk deeper into the city encounters benchmarks of capitalism such as eye-catching skyscrapers, adult shops, cheap fast food outlets, and branded retail companies.

As a candidate to be financial capital of Europe, Frankfurt enjoys being home to the ECB, the German stock exchange, and branches of foreign central banks operating in the city.

Surrounding visitors with the main players of the European finance, the face of "Bankfurt" makes one feel as if in New York or Dubai.

Frankfurt is holding fast onto its leading position in the finance sector, offering vast opportunities in research, education, and employment.

The Goethe University and the Frankfurt School of Finance & Management deserve credited in this regard, as they provide appropriate and attractive environments for scholarly work.

According to Germany’s statistics office, over 26,000 international students pursued a degree in business administration in Germany in the winter semester of 2017-2018, more than in any other subject. The figure marks a 4% rise over the previous year.

The city also offers guided tours for enthusiasts to visit landmarks such as the German stock index DAX, Deutsche Bank, and the Money Museum of the Bundesbank.

As the U.K. is preoccupied wrestling with the Brexit Gordian knot, Frankfurt is ready to steal away its crown as the world’s financial hub.

Towards this end, the German city can also take advantage of hosting the ECB headquarters, which stands out in its new home at the city center with a modern building, inaugurated in 2015.

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