Some of the City’s largest banks are privately warning the Treasury that moves towards Britain leaving the European Union would be a disaster for the City and would jeopardise confidence in the economic recovery.
Senior (Other OTC: SNIRF - news) banking and business figures spoken to by The Sunday Telegraph have revealed growing disquiet at Government plans for a referendum where one option could be an exit from the EU.
One senior banking executive said: “The whole issue has the potential to be very destabilising for the City.
“It risks playing with the future of the British economy for the next 30 years.”
Large foreign banks based in London are thought to be most concerned about the growing political campaign for Britain to leave the EU.
BNP Paribas (Milan: BNP.MI - news) , Societe Generale (Paris: FR0000130809 - news) and Deutsche Bank (Xetra: 514000 - news) have a significant business presence in London and leading City figures believe that they would be put under pressure by their national governments to repatriate functions back to their home countries.
“Do you really believe the German government is going to allow Deutsche to operate in exactly the same way if Britain is outside the EU?” said one senior figure at a foreign bank.
Executives say one reason foreign investment banks have grown so rapidly in London is because it has become the main euro trading hub.
If Britain was wholly outside the EU, then bankers believe Frankfurt would become a more attractive proposition.
“Banks go to the best place to do business. We have a duty to our shareholders,” said one key figure.
“Britain can never become a Switzerland or Norway,” the executive said, referring to arguments that the UK could have a trade agreement with the EU similar to those two countries.
“They are very small by comparison and have completely different economies.”
It is believed that the Treasury is aware of the concerns. If global banks started to move out of London, then the UK’s trade surplus with the rest of the EU in financial services could be undermined, the banking leaders argue.
A recent report by CityUK revealed that the surplus is currently £17bn per annum and that more than 160 EU financial institutions base their business in the UK.
Another chief executive of a FTSE 100 (FTSE: ^FTSE - news) company said that, with the world talking about global solutions following the financial crisis, now was not the time to be considering leaving the EU.
One head of a body that represents financial services interests in the UK said that the mood in Brussels had significantly hardened over the past few months, with many officials believing it is a question of “when”, not “if”, about Britain’s exit.
“Very senior officials say, 'Can you tell me why no British business person makes the case for Europe?’,” the source said. “I have been struck how the mood has changed in the past few months. They see us on the slow path to exit.”
Supporters of Britain leaving dismiss arguments that it would weaken the economy.
“The best way to strengthen our economy would be for Britain to leave the EU,” UKIP’s economics spokesman, Tim Congdon, said at the time of the Chancellor’s Autumn Statement.
“We would quickly save the money now being sent by the Government to the EU, which will total almost £30bn over the next five years.
“That figure of £30bn is bad enough. But it does not include the far more serious damage done by the loathsome acquis communautaire [the body of EU legislation which candidate countries must first adopt], with its hundreds of rules and regulations that cause larger businesses to invest outside Europe altogether, bankrupt small businesses and destroy jobs.”