MADRID LONDON BREXIT

Cuatro Torres Business Center, Madrid

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by Rose Maramba

Ever since the Brexit created the tantalizing possibility that multinational companies headquartered in the City of London will relocate elsewhere in Europe, several European capitals have been hoping these companies will come to them. Hosting them will create new jobs, infuse fresh capital, boost real estate values and never mind the intangible advantage of prestige.

Madrid is naturally one of the aspiring “recipients” of the companies. Some of the factors that work in its favor are: competitive salary; lower office rent; its status as the fastest growing economy in Europe; the proverbial climate of “Sunny Spain”; and the possibility of facilitating access to Latin American markets.

The corporate tax, set by the Banco de España (above), is lower than those set by the French and German central banks

Not that the companies are stampeding out of London. They’re waiting to see what will happen if, but more likely when, the UK leaves the EU. If it were left alone to Prime Minister Theresa May, negotiations would start in March 2017. In which case, Brexit will have become a reality by 2019. But an unexpected High Court ruling last Thursday,  3 November 2016, is obliging the government to seek the approval of the parliament to start off the exit process.

In other words,  to be able to trigger Article 50 of the Lisbon Treaty, an EU law that sets out the process by which member states may withdraw from the Union (“Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements”), the government must have the backing of the parliament. Only then could the exit negotiations be legally commenced.

That sparked an outcry in Theresa May’s government which has announced that it will get the Supreme Court to overturn the ruling; they don’t want the  exit negotiations with the EU to be delayed and derailed.

However, the court ruling is good news to the London-based companies and investors who think the parliament will make it less likely for the government to go for a “hard Brexit” in which the priority will be on restrictive immigration and not on remaining in the European single market.

The British government may have to seek the backing of the Parliament, above, to trigget Article 50 of the Lisbon Treaty

Company executives are not only concerned about the financial implications of what the Brits are calling the EU “divorce”; they are also worried about losing their ability to freely circulate around Europe  which they have been able to do while the UK was an EU member; it still is.

If ever some of the companies would evacuate London, this would be one of the crucial considerations.

Madrid, and other European cities, will of course be there to welcome them with open arms. But Madrid is more competitive when it comes to office rent than, say, Paris, Frankfort or Dublin. Moreover, corporate tax in Spain, which is 30% of corporate gains, is lower than in Germany and France at 38%.

The City skyline viewed from London City Hall

The downside for the Madrid “candidacy” includes not many top-class office spaces, relatively low productivity, excessive bureaucracy  and language barrier.

Meanwhile its competitors have been actively courting the multinationals in London. For example, immediately upon learning about the result of the Brexit referendum, Paris sent out 4000 letters to executives in London ticking off the good things about La Ville Lumière. Giuseppe Sala, Mayor of Milan, toured London for the same purpose.

Madrid has many plans of its own but it still has to get its act together.

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Images
Featured image by Roberto Garcia via Flickr, CC BY2.0
Banco de España by Luis Garcia via Wikipedia, CC BY-SA2.5
British Parliament by  Maurice from Zoetermeer, Netherlands, via Wikipedia, CC BY2.0
City of London by Diliff via Wikimedia Commons, CC BY-SA3.0