Thatcher created Europe’s financial system — for good and ill

The UK remains divided between lovers and haters of Margaret Thatcher, its transformative 1980s prime minister. How should financial specialists feel? Many revere her — and the lightly regulated, debt-fuelled markets that her government made possible are still in place. But it may still to be too early to tell whether they will prove to have been good for Europe’s health.

  • 09 Apr 2013
Email a colleague
Request a PDF

The outpouring of comment on the influence of Margaret Thatcher since her death yesterday has astonished some – especially those under 40 who may only dimly remember her as a decisive figure on the world stage and the dominant force in UK politics for over a decade.

But to many in the City of London – and its Thatcherite doppelganger, Canary Wharf – the fuss being made about someone who left public life 23 years ago seems quite natural.

The modern structure and nature of Europe’s financial markets was defined by the Thatcher government’s Big Bang reforms of 1986, and the wave of privatisations of state industries that was copied around the world.

From the perspective of London, of financial intermediaries and traders, and probably of international big business, the Americanisation of the City’s fusty oligopolies now appears an almost unqualified success.

A short walk among Canary Wharf’s rainswept towers is eloquent proof of what was built in London as a result of those reforms. Long a leader in finance, the UK took the initiative with deregulation to leapfrog the US. The result was that Europe’s financial activity became centred on London to a much greater degree than ever before. When eastern Europe opened up to capitalism – another process aided, even hastened by Thatcher – London was ready and waiting to finance it.

Even the creation of the euro in 1999 – which Thatcher had opposed – only seemed to accelerate the relative decline of rival capital markets in Frankfurt, Paris, Milan, Zurich.


Europe’s powerful market

The significance of this goes far beyond the hubristic London triumphalism that now taints the city’s self-image.

The liberalisation brought about by Big Bang led to the creation of a single European capital market, dominated by large, global players free to integrate banking, insurance and securities activities. EU-driven regulatory changes such as Mifid, designed to formalise this unification, are in some ways only catching up with the reality on the ground.

This market has supported European business as it globalised and took advantage of the creation of the European single market for goods and services – another innovation that Thatcher enthusiastically supported.

The capital market fostered a culture of fluid mergers and acquisitions that has produced notable successes – and failures – although academics regularly argue that most deals destroy shareholder value.

And it acted as a channel for the worldwide dissemination of Thatcherite economics – the approach, astonishingly radical when it was introduced, of trusting markets to decide exchange rates, prices, wages, rents and energy costs.

For all this, and more, many in Europe’s financial and business world regard Thatcher as a hero.


An unfinished revolution

Yet the jarring economic and political change that began in the late 1970s has still not played itself out. The social inequality that has widened in all developed countries is still widening. Countries from Portugal to Greece are arguably enduring their own Thatcherite upheavals now. France may still be hiding from its reckoning.

And the unification of Europe – to which Thatcher was a great contributor, through her support for the single market and the UK-based single capital market – continues to wrench the continent’s economy in unpredictable directions.

Just as within one nation, certain industries tend to concentrate in specific regions, so the logic of a continent-wide single market may be that high-tech manufacturing becomes concentrated in Germany, finance in London and so on. That may be economically efficient and even necessary, but it can be socially devastating.

In this sense, the present eurozone crisis – caused by the weakness of peripheral economies – may be blamed just as much on the European single market as on the single currency, something UK politicians have never admitted.

London’s treasured capital market is also responsible for the crisis – as chief facilitator, cheerleader and beneficiary of the bond boom. This free market fiesta showered borrowers with feet of clay, from Iceland to Cyprus, with more debt than they could ever repay, from lenders who felt no obligation to stick with the borrowers when things turned nasty.

For Europe as a whole, therefore, Thatcher’s impact has been multi-faceted and is still revealing itself.


UK economy not healed

It is the same for the UK. For while Thatcher tore away the stifling and stagnant 1970s faster than her peers in most other countries, the freewheeling entrepreneurial culture that took its place did not restore the industrial might of Britain before 1914. Free markets could accomplish much, but not that.

Old, unprofitable businesses like shipbuilding and coalmining were consigned to the scrapheap, but they have only partly been replaced. The industrial cutting edge has remained in countries like Germany and increasingly east Asia, where the state takes a stronger hand in industrial policy and capital markets are much more staid. Many ex-industrial areas of Britain remain severely depressed – not helped by the weakness of local government, another Thatcher bequest.

From Thatcher’s time until 2007 the UK could congratulate itself on faster economic growth than some peers. It is now clear that – under Thatcherite policies maintained by the three next prime ministers – a big reason for this boom was that UK households borrowed a lot more money.

The cultural and institutional problems that made the UK feel economically inferior to Germany in the Auf Wiedersehen, Pet years of the 1980s are still with us. Reliance on financial services and now-waning North Sea oil may have made the country complacent.

Now the IMF reckons the UK’s level of real GDP in 2007 will not be regained until 2017. The dip in German output lasted just two years, while even with the benefit of the City, UK GDP per capita remains below France’s.

The UK’s financial markets, despite the battering of recent years, remain a big winner from Thatcher’s changes 30 years ago and owe her a debt of thanks. The institutional side of the markets remains in the main highly professional and sound – though the retail side has been scarred by an army of mis-selling scandals.

Ironically, however, the City’s future is now more in doubt than at any time since Big Bang – threatened on one side by Brussels-led regulation, on the other by the rampant Euroscepticism of politicians who claim Thatcher as their inspiration.

Britain – especially its financial market – has much to thank Thatcher for. But building a sustainable, broad-based and socially inclusive economic model remains a work in progress.

  • 09 Apr 2013

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 417,761.51 1606 9.02%
2 JPMorgan 380,362.89 1737 8.21%
3 Bank of America Merrill Lynch 364,928.71 1322 7.88%
4 Goldman Sachs 269,252.76 932 5.82%
5 Barclays 267,252.43 1082 5.77%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 45,449.36 196 6.56%
2 BNP Paribas 38,734.80 217 5.59%
3 Deutsche Bank 37,615.10 139 5.43%
4 JPMorgan 34,724.19 118 5.01%
5 Bank of America Merrill Lynch 33,835.53 112 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 22,475.46 105 8.65%
2 Morgan Stanley 19,057.00 101 7.34%
3 Citi 17,812.08 111 6.86%
4 UBS 17,693.89 71 6.81%
5 Goldman Sachs 17,333.10 99 6.67%