The London and Frankfurt Stock Exchanges

Part of the debate – in the House of Lords at 4:37 pm on 24th May 2000.

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Photo of Lord Barnett Lord Barnett Labour 4:37 pm, 24th May 2000

My Lords, I begin by congratulating my noble friend Lord Layard on his maiden speech. I declare an interest in that he has never lectured to me! He said that his speech was non-controversial. I look forward to hearing him when he is being controversial!

I make it clear that I agree with what he said although I imagine that one or two people may have considered his speech controversial, not least the noble Lord, Lord Lamont, who was non-controversial today. I congratulate him on his speech. When I read it in the Financial Times earlier today I thought that we had moved into a new era of having our speeches printed in newspapers. I have the article here. I was glad to have a copy of the noble Lord's speech in advance! I enjoyed both the article and the noble Lord's speech. I agreed with much of what the noble Lord said, which surprised me considerably. I shall return to some of the points that he made. I willingly concede that on this occasion the noble Lord was non-extremist in his views. I know that I upset him once when I accused him of being extremist.

It was always inevitable, I suppose, that reference to the euro in the Motion--I do not know who drafted the rather badly worded Motion; I should be surprised if it was the noble Lord--would immediately provoke some people (both in this Chamber and outside) into expressing the usual reaction. I am glad that the noble Lord, Lord Lamont, did not express that reaction--although in the Financial Times he could not resist referring to the "insensitive handling" of the euro. I shall come to that in a moment.

The noble Lord, Lord Lamont, said, sensibly and rightly, that many questions need to be asked in regard to the proposed iX. I agree with the many questions that the noble Lord and others have put. Without the answers, I join him in being a "don't know". We need answers to many of the questions about the details of the merger proposals.

I fear that there will be a knee-jerk reaction from some politicians. Who is right: the politicians or the market? I am rather surprised that some Conservative politicians--of all people--have said that they should tell the markets how to handle the merger. I do not include the noble Lord, Lord Lamont, among them. He deliberately excused himself from that--although he did not refer to his right honourable friend the Shadow Chancellor of the Exchequer.

In The Times on Monday, the Shadow Chancellor, Mr Portillo, put forward three basic arguments for rejecting the merger--not for seeking details, but for rejecting the merger. Perhaps I may refer to those arguments and comment on them briefly. All three arguments have been referred to, of course, by the noble Lord, Lord Lamont. He obviously does not take instructions on these matters but, nevertheless, he has read what his right honourable friend said.

Mr Portillo's first argument was that hi-tech stocks will move to Frankfurt and will involve a serious shift of business from London to Frankfurt. Secondly, he raised concerns about the German regulatory system, which I shall refer to in a moment. Thirdly, he thought that all equity trades would be in euros. I wish to deal with all those arguments, which, as I said, were also referred to by the noble Lord, Lord Lamont.

First, on the fear that hi-tech stocks will move to Frankfurt, we have not yet heard in detail how the merger will work, but I assume that, as it is a merger and not a takeover by one of the other, not surprisingly some parts of the merged exchanges will have some parts of the business. On the other hand, London is far and away the bigger financial centre; it is hugely bigger.

Perhaps many of the banks that the noble Lord has told us he represents will be based in both centres--I do not know--but I hope that he advises them from a professional point of view rather than from his views on the euro. That is an aside; I am sure that he does. I am sure that the pensions of my noble friend Lord Desai and myself would be in good hands if they were in the hands of the institutions the noble Lord advises.

Given that London is so much bigger than Frankfurt now--and is likely to be so in the future--and that it will be handling the major FTSE equities, the likelihood surely is that if there is to be any shift at all it will be from Frankfurt to London rather than the other way round. However, it is at least possible that there will be such shifts. Indeed, they are inevitable in a way because we are dealing with a different kind of market.

As to the worry about German regulations, there are serious differences between the regulation of our market and the regulation of the German market. We have the greatest living expert on our regulatory authority--the noble Lord, Lord Saatchi--who will reply to the debate for the Opposition. I hope that he will reply, not on the basis of advice that he has received from his right honourable friend Mr Portillo, but from his own considerable knowledge, having now sat through many long, tedious hours listening to, as well as taking part in, our debates.

As to the issue of the euro, the Motion states:

"if shares have to be denominated in euros".

As the noble Lord, Lord Lamont, knows--as he willingly concedes--the market will decide these matters; shares will be denominated in the way that the market wishes them to be denominated. To table a Motion which refers to a fear of denomination in euros is clearly a nonsense; it is unlikely to happen.

I get confused between Mr Portillo and the noble Lord, Lord Lamont, but one of them said that even if we are outside the euro zone, denomination will be determined by market forces. I think that that must have been said by the noble Lord; he is more sensible than his right honourable friend. Whether we are inside or outside--I hope that we will be inside soon; I know that that is contrary to the hopes of the noble Lord--the euro arguments and the euro fears are quite unnecessary and irrelevant.

Probably the most serious matter in regard to the success of the London market is the question of stamp duty. Even the noble Lord, Lord Lamont, is in favour of harmonisation between ourselves and Frankfurt in this respect. At least he wants harmonisation between ourselves and Frankfurt. Perhaps my noble friend can indicate what the Chancellor has in mind in this regard. I am not asking him to tell us what will be in the next Budget, but it would be reassuring to know that the Chancellor and the Treasury are aware that there is a problem.

Decisions should be taken by those directly concerned--the markets--and not by politicians, whether in government or opposition. In my view, it is right that the merger should happen now, but it will happen soon anyway. As the noble Lord, Lord Lamont, said in the Financial Times, and similarly in his speech:

"A merger of the London and Frankfurt stock exchanges on the right terms could be immensely beneficial to all concerned. The vision of a market that covers half the equity trading in Europe is a bold one".

I am sure that most people, on either side of the argument, would agree with that. I certainly hope they would. We are now living in a global market and it must be sensible to move in that direction.

I hope that the decision will be taken on the basic facts and not on any false political rhetoric, especially if it is based on irrelevant and--dare one say it?--anti-foreign prejudice. We know that that exists. I am not suggesting that any noble Lords opposite have such prejudice--and that includes the noble Lord, Lord Lamont, no matter how much I describe him as an "extremist" on this subject.

Certainly there is a Eurosceptic argument. I take the other side of that argument, but I believe that it would be not only sensible but right to move in that direction in the way suggested by the noble Lord, Lord Lamont. I hope that the merger will take place as soon as possible. In my view, it will inevitably take place in the not too distant future, even if it does not take place now.