European Central: How The Netherlands Is Benefitting From Brexit
Kypros/Junior Gonzalez
Once known as the Venice of the North, Amsterdam appears set to overcome London and become the European Union’s new financial capital. This would be a triumph for Amsterdam as the city lost this title to London several centuries ago. While the United Kingdom was part of the European Union, 43 percent of trading in European Union stocks was done in London. In 2021, this has dropped to only 4 percent. In January of 2021, 20 percent of all trading in European Union stocks was done in Amsterdam, over double the trading is done there before Brexit. This has helped Amsterdam jump from the sixth-largest trading center in the European Union to become the largest.
While this seems like a major blow to London, the impact of these EU shares being traded elsewhere has not had a huge impact on the city. Job loss has been minimal so far, and the tax income that London will lose is minimal. It is more about the symbolic title that London loses and Amsterdam gains over the tangible benefits. While Amsterdam has gained this title, the Netherlands Foreign investment Agency points out that Brexit still has the potential to hurt the Netherlands significantly. The United Kingdom was the second-largest trading partner for the Netherlands, but this can change dramatically as the United Kingdom is no longer in the European Union’s single market. This has the potential to hurt the Dutch economy until it finds other markets to absorb the loss it may face from Brexit.
It is also important to point out that London lost all of this trading in EU shares due to a rule from the European Union itself. EU shares traded in Euros need to be traded within the European Union, or a country with equivalence status. The United Kingdom failed to secure this title of equivalence status before Brexit, forcing the trading to move elsewhere. If the United Kingdom were to gain equivalence status in further negotiations with the European Union, who knows if some trading in European Union stocks would move back to London.
Why Amsterdam?
Back in 2016 when the world realized Brexit would become a reality after the referendum, there was already discussion back then about what city would replace London in the financial world. Back then, Amsterdam was already ranked as the top city. Compared to other European cities, Amsterdam has the advantage of language skills. Fluency in English is not a problem for Amsterdam as it is for Barcelona or Milan. Amsterdam also has one of the best airports in Europe and is connected to several other European capitals by train. One of these capitals is Brussels which is also important for its role as the capital of the European Union and only a short train ride away from Amsterdam. Amsterdam is also geographically closer to London than other cities. Due to these benefits, the Netherlands has also seen companies and headquarters relocate to the Netherlands as well. Since 2016, there have been 216 companies that have relocated to the Netherlands. The Netherlands Foreign Investment Agency has stated 550 more companies are currently in talks to relocate to the Netherlands. There may have not been a large increase in jobs due to the increase in trading in Amsterdam, but the companies that left the United Kingdom for the Netherlands in 2020 alone are expected to bring 6,000 jobs and almost 655 million dollars worth of investments by 2023.
Tough Competition
While there are advantages to relocate to Amsterdam, there are some problems as well. As critics rightly point out, Amsterdam is not taking everything from London, but instead has had to share the spoils with other cities in the European Union. Dublin, Frankfurt, Paris, and other cities have benefitted from Brexit as well. One major issue for Amsterdam is executives, in particular, are not keen on moving to Amsterdam based on the bonus cap. The Netherlands has capped the bonus for those working in the financial sector at 20 percent of their annual salaries. This is the harshest cap in any country in the European Union, and the European Union itself capped bonuses at 100 percent of the annual salary of financial sector workers. The bonus cap was created as a result of the previous financial crisis. Due to the cap, banks have chosen to relocate to Frankfurt, Paris, and even Madrid over Amsterdam.
Compared to other member states, the Netherlands has a higher corporate tax rate which is another deterrent for companies. At the same time, the Dutch corporate tax rate is lower than that of France and Germany, hurting the chances of Paris and Frankfurt to fully compete with Amsterdam. Dublin has seen the most headquarters of other companies relocate to the city in part to Ireland’s low corporate tax rate. Ireland’s corporate tax rate is currently 12.5 percent and one of the lowest in Europe, particularly Western Europe. This may partially explain the relocation of 125 financial firms to Dublin, the most of any city. Dublin also has the benefit of language since English is the first language for the majority of citizens in Ireland. Compared to London, Dublin’s main drawback is it is significantly smaller. Paris is the only European city that can compete with London based on this metric.
Frankfurt is considered to be the closest competitor to Amsterdam. Frankfurt has the second-best airport in Europe only after London’s Heathrow airport and is connected by train to other major European Cities. Another advantage the city has is it is the location of the European Central Bank. Some argue that because Frankfurt is the location of the European Central Bank, they preferred London as the financial capital of the European Union as a way to balance out power. Germany is viewed as having a large influence in the European Union. While the other cities are considered to have good nightlife and attractions for workers to enjoy in their free time, Frankfurt is viewed to be lacking in this aspect.
