Frankfurter Allgemeine Zeitung, 1 February 2002

London and Frankfurt benefit from one another

The euro and the European Central Bank strengthen the city on the river Main /

A new study

By Rolf Ackermann


FRANKFURT, 31 January. London will continue to grow as a major international financial centre, and so will the Continental European financial centre of Frankfurt in its wake. This is the conclusion reached in a new study by the London-based Anglo-German Foundation for the Study of Industrial Society (, straightening the record in the heated public debate about the competitive relationship between the financial centres. The study comes to the conclusion that the relationship between the two cities is not a zero-sum game. On the contrary, both cities benefit from one another. Frankfurt, home of the German Bundesbank, gains extra strength from the euro and as the location of the European Central Bank -- but not at the expense of London. As the study says, the two cities are linked with each other in a "complex city network cooperating on many levels".

For Peter Taylor, one of the authors of the study, it is also of secondary importance where the head office of a financial institution is located -- apart from the symbolic effect of a possible relocation of the Deutsche Bank head office. London offers the best example of this thesis, says Taylor. People often forget that not very many British banks have their head offices in London. The British capital is not a base for bank head offices but a centre for global finance activities. For this reason, Taylor prefers to talk about the "Wimbledonisation" of London, an effect which also benefits other European locations such as Frankfurt, because the relative closeness to London helps Frankfurt companies stay internationally competitive.

All the same, there are other arguments which tend to support the concerns in Frankfurt about a possible decline in its importance as a financial centre. They arise from the answer to the question of why financial centres keep growing -- despite traffic congestion as in London and exorbitant rents which may largely cancel out tax advantages. The answer is that the players in financial centres see various advantages in being where all the others are, and this net advantage more than compensates for the obvious disadvantages. Once you have joined all the others, you will also find qualified staff and specialist services. Above all, however, there is a maximum information flow in a financial centre -- and being cut off from this flow of information is something no participant in the market can afford. "When I want to meet someone, he must be sitting here somewhere, and that is why we are here," the study quotes a London manager as saying. Financial centres will keep growing, in other words, because everyone follows the rest. The academic term for such snowball effects is "self-reinforcing". The problem for the financial centres that are not Number 1 is that the reverse process may also be self-reinforcing. In other words, everyone leaves because everyone has left.

The study summarises its findings by concluding that the relationships between the financial centres of Frankfurt and London contain both elements -- they are both rivals and partners. That means that each centre has an uncertain future, because if there is one thing the researchers agree on, it is that the issue is highly complex and hopelessly oversimplified in public discussion.



© 2002 Frankfurter Allgemeine Zeitung