July 2008 | By Ignacio de la Torre, Academic Director of Master in Finance, IE Business School
Over the last few years, Madrid has managed to climb a few positions to become a more important international centre of finance, but in order to consolidate itself in a top position it needs to carry out a series of improvements.
At the beginning of the 13th century, the all-powerful England of King John (the baddie in the Robin Hood films) was defeated by an extremely modest France, which at the time comprised only Paris and the surrounding area. What was the secret behind the French success? London was an important political centre with a financial power that was on the decline, whereas Paris was a political centre of little significance with a financial power that was just beginning.
This mediaeval anecdote should help us reflect on our capital cityÂ´s role as an international financial centre. Paradoxically, in a context of political decentralisation in which Madrid has seen how its political power has been considerably reduced, the city has developed huge economic power in terms of GDP and GDP per inhabitant. The next challenge is to take advantage of this economic importance, “capitalising” on Madridâ??s position as a top-tier financial centre. A few weeks ago, Deloitte published a report that classified Madrid as the fourth-ranking international financial centre (behind New York, London and Paris). However, a report commissioned by the city of London on the basis of 7,193 surveys (many of them biased towards Anglo-Saxon markets) position Madrid in 42nd place in terms of international financial importance. In recent years, Madrid has enjoyed an economic and financial environment that has allowed it to climb many positions as a financial capital, higher than number 42 without a doubt. Nevertheless, the black clouds that hang over our economy, the deficit of the Spanish current account, the difficulties affecting the securities markets and the low-level volume of corporate transactions will force us to increase efforts if we want Madrid to effectively be among the top five financial capitals.
What challenges face the Spanish capital to consolidate its position? First of all, Madrid needs to take up important initiatives to become the financial capital of Latin America instead of Miami. Accordingly, the launch of the alternative stock exchange (ASM), for listing medium-sized Latin American companies under expansion, may be one opportunity. Second, there must be a joint effort from the regulator (CNMV) and fund managers to promote Madrid as a more developed asset management centre, a condition that today applies to Paris and for which we still have a long way to go. Third, Madrid could explore the world opened up by Islamic finance and its relevance for channelling investment projects involving this type of saving towards the Maghreb (perhaps Comunidad de Madrid could consider launching an Islamic bond (sukuk) to stir things up. Fourth, Madrid must take advantage of its strategic edge as the location for prestigious international business schools. Accordingly, new masters in finance, such as those developed by IE, do an excellent job of attracting foreign talent. Fifth, tax regulations and legislation must be made attractive to turn Madrid into a medium-level power as a centre for hedge and venture capital funds. Six, Madrid must find its role on the up-and-coming raw materials financial market, especially its derivatives, taking advantage of the closure of other emerging competitors caused by populist hysteria.
In 1202, a humble treasurer of the Knights Templar, brother Aimardo, developed an excellent budget system that was vital for maximising the efficiency of financial resources and helped win the war against England. Now it is our turn, legislators, entrepreneurs, fund managers, bankers, politicians and academics, to engage in dialogue and agree on a realistic and efficient action plan for Madrid to achieve a victory similar to that of France in the 13th century.