London

For now, London stands head and shoulders above other European centers. It has the biggest foreign -exchange and equity markets, the greatest concentration of insurers and pension funds and the largest number of foreign banks. Yet it knows that is more vulnerable than the other big two centers. New York and Tokyo. Much of its banking, foreign –exchange insurance and securities business is international-and thus mobile. The Corporation of London, the archaic local government that rules the City’s square mile, is spending $ 2,5 on a research project to access London’s competitiveness.

In some ways London looks more secure now than it did. In the 1960s and 1970s sterling was under constant attack; exchange controls hedged London’s markets in; top personal –tax rates were ludicrously high; and the stock market as losing market share. The euro markets that had come to London by chance were dominated by foreign intermediaries. There were doubts about the British tradition of non-and-wink regulation.

Things improved in the 1980s.Exchange controls went, tax rates were cut, sterling stabilized. More significant for the rest of Europe was the London stock market’s in 1986. Big Bang scrapped fixed commissions, allowed unrestricted entry to the exchange and set up an electronic market-making system in place of the old floor-trading jobbers.

London has built on this success in the 1990. Sterling joined Europe’s exchange rate mechanism in 1990, reassuring skeptics about the British commitment to fight inflation. The regulatory system strikes a better balance between light self-regulation and effective statutory rules than more those applied in several other financial centers.

Paris.

That is not true that the continent’s two biggest centers, Paris and Frankfurt, both of which harbor dreams of supplanting London. For the past 5 years Paris has been erecting the infrastructure to support its claims. In the early Victorian era Paris was as big a money-raising center as London; it was the 1848 revolution and the Franco-Prussian war of 1870 that deflated it. And in the early 1960s it might have been Paris not London that became the center of the eurodollar market.

Paris looks impressive enough. French banks are Europe’s biggest. The bourse, which has an automated trading system is open to banks and foreigners and boasts paperless settlement. But looks may not be enough. France’s domestic financial base, with few private pension funds and lots of companies still in state hands, is weak. This prevents Paris, unlike London, from attracting much international business. Financial markets evolve through the leadership of practitioners, not governments. France has mountains to climb before it gets a risk –taking, market-making culture like London.