But it is also clear that for Britain to stay outside the euro is

But it is also clear that for Britain to stay outside the euro is, in the medium term, incompatible with retaining its pre-eminence as the financial capital of Europe.Today, in expertise, critical mass of companies, weight in world markets and business infrastructure, London considerably outclasses any other European city as a financial centre It is enjoying great prosperity. The challenge that London is now facing, however, is that there exists serious competition in certain “cutting-edge” areas – fields that represent the future of finance.One is investment banking, and there have been well-publicised problems in this sector in Britain. Two of the UK’s most important financial institutions, NatWest and Barclays, were devastated by unsuccessful steps in this field. The UK-owned investment banking sector has been drastically weakened.A second “cutting-edge” area is futures and derivatives. Liffe is one of the key strategic financial institutions of London. It remains the pre-eminent European futures and derivatives market in terms of value of transactions. But it underwent serious reorganisation, faced with the challenge of the electronically based German-Swiss Eurex and, as I have pointed out in this column previously, the loss of the Eurobund futures contract to Eurex was one of the biggest setbacks for London as a financial centre in recent years.Another key issue is exposed by the negotiations for the merger of the London and Frankfurt stock exchanges.

If futures and derivatives are the cutting edge of finance, hi-tech is the foundation of the new economy. One of the major issues in the negotiations on the future of the London and German exchanges is the proposal that the centre of the hi-tech start-up market should be in Frankfurt.The challenge is that serious competition is emerging in some of the most advanced areas representing the future of financial services. Maintaining the City’s role as the financial centre of Europe means meeting those challenges, and that cannot be done outside one of the world’s great currency areas. There is a further aspect to this in terms of the unique strengths that London brings to Europe. In this regard, it is vital to grasp London’s full scope as a great international city. The fact that London is Europe’s financial capital, when the UK is far from being Europe’s largest economy, is due to the internationalisation of the City.The extraordinary diversity of the city in its widest sense, its vast network of cultures and communities, is ultimately rooted in that.

The vast diversity is itself one of London’s great strengths – and one that will become increasingly important in future.The speed of Asia’s recovery from its 1997 crisis emphasised its underlying economic strength. The Pacific, not the Atlantic, remains the greatest trade network in the world. Furthermore, the economic strength of East Asia is spreading to other parts of the continent. To take one example, the Indian computer and software sector is doubling its output every two years.If London is to remain the financial centre of Europe, and if it is to attract the inward investment and skilled labour necessary for that, it cannot do so without internalising and adopting the same cultural norms and approach. Those attempting to re-position the Conservative Party as closely as possible to Jörg Haider – who apparently believe that London can survive as Europe’s leading financial centre while adopting a narrow racist culture – do not understand the process of globalisation.Globalisation does not mean simply that we invest in other countries. It also means that we must be the key centre where others want to invest.