The City and the Common Market
NICHOLAS DAVENPORT
Having been warned by this journal amongst others that the White Paper on the Com mon Market was npt 'an economic assess- ment', as it purported to be, but a political document issued by a cunning Prime Mini- ster anxious to back out of what might be an unpopular election commitment, I can- not claim great perspicacity in discovering its real secret. I believe it is Mr Wilson's secret weapon aimed against the City. For, out of all its ambiguities, its widely differ, ing estimates of profit or loss, its bewilder, ing obfuscations, one fact stands out clearly and brutally—the only ones who cannot pos- sibly lose by joining the Common Market, who can only make an enormous gain, are the financial institutions of the City!
It is for these financial interests, the Prime Minister will surely argue in due course, that we are being asked to agree to a rise in retail food prices of 18 per cent, to 26 per cent, involving an increase in the cost of living index of 4 per cent to 5 per cent. On the one hand the harassed house- wife will be paying 4s a pound more for her butter: on the other hand the happy mer- chant bankers, the life assurance directors, the unit trust managers and the stockbrokers will really be bringing home the bacon. I can imagine a monster 'demo' of angry families marching on the Bank of England and the new Stock Exchange tower while the richer- than-ever purveyors of finance will be sun- ning themselves in their new villas on the Mediterranean. These, incidentally, they will be able to acquire not at the prevailing 334 per cent premium on 'property dollars' but at the official rate of exchange because free movement of capital is allowed within the confines of the Common Market.
This likely denouement would be only one of the many awkward consequences if we sign the Treaty of Rome. It just cannot be helped. London has a financial organisa- tion, experience and expertise which are not to be found on the Continent. As the White Paper says: 'The City can offer a wide range of financial and commercial services—not only insurance but banking, shipping, merchanting, commodity markets and portfolio management—which is unrival- led outside the United States.'
Take banking and the Stock Exchange. There is no effective capital market on the
Continent comparable with London. In Paris, Brussels, Amsterdam and Bonn there is not to be found the imposing array of merchant banks and insurance companies gathering up the savings of the people and channelling them into investment through the issuing houses and the Stock Exchange. On the Continent the commercial banks usually take care of finance for local industries in the absence of a capital market. But if Britain joins the Common Market the most important industrial capital issues will prob- ably flow to London to the great profit of the merchant banks and the stockbrokers engaged in the issue business. And there will be a big increase in company mergers. The White Paper anticipates a move on the part of UK firms to seek 'economies of scale through mergers with their European part- ners'. (This could not be prevented by the Mondfiolies Commission because what -con=-_
stitutes a monopoly here would not apply to the Common Market.) London, at present restricted by the exchange controls to ar- ranging overseas loans in euro-dollars, could then become the free financial centre of a vast industrial growth area. It would be a field day for the merchant banks.
An equally big expansion awaits the in- surance industry. At the moment it cannot trade freely on the Continent because the EEC countries have legislation discriminat- ing against non-EEC insurers. But when our life companies can attack a common market for insurance of over 250 million people with their ingenious policies providing life cover with capital growth, linked with equity shares, there should be quite a rush of foreign savers into British life insurance. And apart from life insurance there is a big field for British fire and accident policies. There is nothing on the Continent like Lloyds which will cover the risks of every conceivable form of trade, even your legs if you are a ballet dancer or your hands if you are an international concert pianist.
And there is nothing on the Continent like our unit trust movement. Their—for me—too ingenious advertisements offering to double your capital over a period of years might conceivably attract a new army of savers. The continental idea of saving for the future is often to hide money under the bed or to bury a lump of gold in the garden. The revolutionary ideas of our unit trusts for turning money saved into capital growth could bring a new inflow of business into the City of London.
The White Paper believes that if all these trading opportunities are picked up by the lively financial institutions of the City on our joining the Common Market there should be 'a valuable expansion of our invisible earnings'. The City's 'invisibles', now around £235 million a year, could in fact enjoy a 50 per cent rise. The White Paper does not appear to be so certain about the visible earnings of our industries. The 'impact' effect, it says, might be a worsening effect on the balance of trade of
between £125 million and £275 million. But it is confident that it would make our in- dustries more competitive and efficient by allowing a high level of investment in new plant and equipment to be sustained.
Adding up its wide estimates of the costs of entry in respect of agriculture, commun- ity finance, trade and industry, capital move- ments and invisibles the White Paper comes to the laughable conclusion that the debit will range from £100 million to £1,100 mil- lion. It would have made better sense if it had concentrated only on visible trade and finance. Capital movements can always be separately financed and have nothing to do with current trading problems. For example, entry into the Common Market would undoubtedly attract a greater inflow of capi- tal to the UK from the United States for industrial investment, but on the other hand a majority of rich bankers, financiers and industrialists might decide to emigrate to their villas in the sun with their entire per- sonal capital. One could cancel the other. Why, then, bother to bring possible capital movements into the estimate?
My conclusion is that no one in his senses will make up his mind on the question of the EEC until the hard negotiations are over —the White Paper should be read as a negotiating document—excepting always the man who earns his livelihood in the City. For on the day of entry, the City will boom.
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