Battilossi, Stefano

English

Research Papers in Economics

626
Book Reviews 
MODERN EUROPE 
London and Paris as International Financial Centres in the Twentieth Century. Edited 
by Youssef Cassis and Éric Bussiere. Oxford: Oxford University Press, 2005. 
Pp. xiii, 367. £50. 
  On the eve of the First World War, Paris ranked second among the main financial 
centers of the pre-1914 globalizing economy. Although unable to rival the depth and 
breadth of London’s money and capital markets and the international ramifications of 
British banks, Paris succeeded in attracting foreign banks and borrowers more than 
any other European center of the time. Throughout the rest of the century, however, 
the two centers moved on increasingly diverging paths. The shrinking role played by 
Britain and France in the international economy, along with the decline of the pound 
and the franc as international currencies, hampered for good Paris’s global ambitions, 
yet did not prevent London from surging again as an international “financial phoenix” 
in the second half of the century. What accounts for this divergence? To what extent 
can London’s success and Paris’s failure be explained by different levels of financial 
development, different characteristics of the interwar nationalistic retrenchment, or 
different strategic choices made by governments and business elites? Shedding light 
on these challenging questions was the ambitious purpose of the editors of this vol-
ume, who rallied British and French scholars at a one-day conference held at the LSE 
back in 2000. The book offers plenty of comparative hints about the when, why, and 
how of the London-Paris divergence, although it hardly attempts to draw conclusions 
from the rich evidence provided. Readers would have welcomed an additional effort 
by the editors to wrap up some of the volume’s findings in the form of conclusive re-
marks. Even more so, as the London and Paris chapters tend to run parallel or sit back-
to-back and rarely cross paths or look into the other’s mirror. 
  Overall, the volume suggests that London’s international vocation can be largely 
credited to a positive feedback between the legacy of past successes and the ability to 
adapt to new circumstances. London’s global reach and higher degree of diversity and 
functional specialization before 1914 (surveyed by Y. Cassis, pp. 107–18) provided an 
enduring competitive advantage over the narrower geographical and functional spe-
cialization of Paris. As emphasised by R. Michie (pp. 21–22), this allowed London to 
exploit new opportunities created by apparently adverse developments, as demon-
strated by the rapid growth of a foreign exchange market during the unprecedented ex-
change rate volatility of the 1920s. French trade remained largely dependent on Lon-
don’s acceptance houses; later attempts by the French authorities to promote a franc-
based acceptance market failed, as documented by A. Plessis (pp. 42–54). The British 
Empire (the subject of N. Ferguson’s contribution, pp. 57–77) provided a wider, 
richer, and safer background for the survival of the international spokes of British fi-
nance than the French Empire. Moreover, the post–World War I geopolitical devel-
opments in Russia and the Balkans proved particularly disruptive for the network of 
banking and financial linkages centered in Paris (as emphasised by H. Bonin, pp. 183–
204), in spite of the fact that the 1931 systemic banking crisis of Central Europe ap-
parently hit British banks harder than French (in his chapter, P. Cottrell provides inter-
esting insights of the role of Montagu Norman and the Bank of England in the man-
agement of the Credit Anstalt collapse and the ensuing faltering of British merchant 
banks, pp. 153–82). Book Reviews 627
  Both the British and the French narratives unanimously identify the defining moment 
of divergence with the post–World War II developments. Since the late 1950s the emer-
gence of the Eurocurrency and Eurobond markets and the regulatory constraints im-
posed on the international development of the U.S. system gave European financial cen-
ters fresh opportunities for growth and profit. In spite of the die-hard legacy of foreign 
exchange and capital controls in both economies, British authorities were prepared to 
adopt a tolerant and pragmatic approach that favored the entry of U.S. and other foreign 
banks, and the development of foreign currency transactions (the subject of chapters by 
C. Schenk, pp. 207–28, and M. Baker and M. Collins, pp. 247–64). This environment 
definitely proved more conducive to financial openness and innovations than the dirigis-
tic attitude of French authorities, whose financial reforms (the Debré legislation of 
1966/67) were short-lived and mostly unsuccessful (Plessis, p. 51). In fact, O. Feiertag 
provides archive-based evidence of the wide consensus among French monetary au-
thorities and financial and business elites on the desirability of an insulated financial 
system subordinated to the objectives of indicative planning (pp. 229–46). In fact 
French scholars explain the endurance of financial mercantilism as the consequence of 
an “overdraft economy” dominated by an exclusive club of incumbent banques d’affaire
and deposit banks, on whose investment banking strategies in different epochs S. Saul 
(pp. 119–50) and E. Bussiere (pp. 265–85) provide interesting details. The internation-
alization gap accumulated in the 1960s–1980s had long-lasting consequences. At the 
turn of the twenty-first century, London retained or even strengthened its dominance as 
a “global financial powerhouse,” though that cost her an invasion by U.S. investment 
banks and the acquisition of traditional British merchant houses by U.S. or European 
competitors—“the death of gentlemanly capitalism,” as dubbed by R. Roberts (pp. 287–
312). On the contrary, in spite of its own financial “big bang” in the late 1980s and the 
potential externalities created by the EMU, the international status of Paris seemed to be 
still questioned not only by foreigners but also by French companies themselves, which 
preferred to raise capital abroad during their rapid and successful process of internation-
alization (A. Straus, pp. 313–25). 
  Whereas the long-run perspective provided by the volume is certainly one of its 
main assets, the lack of a unified analytical narrative makes it somehow fall short of 
its potential. The only exception is the nice chapter by M. Flandreau and F. Gallice 
(pp. 78–106), who use the archival records of Paribas to reconstruct the structure of 
the bank’s international money balances. By doing so, they successfully uncover the 
hidden geography of short-term capital movements in the heydays of the Gold Stan-
dard. As it emerges from their analysis, Paribas operated two complementary networks 
of correspondent relationships: a public network related with franc-denominated sov-
ereign lending to governments whose finances the bank helped manage (interesting in-
sights are provided of its ties to Russia); and a private network, through which the 
bank systematically recycled excess liquidity by purchasing sterling bills placed with 
foreign banks (mainly German and Austrian, even on the eve of the breakout of the 
war) operating in London. The latter were liquidated whenever the bank faced massive 
withdrawals of resources by its foreign depositors. Such a mechanism linking the two 
financial centers, they suggest, may have contributed to the volatility of London bal-
ances (a feature of short-term capital flows under the gold standard already noted by 
A. Bloomfield in his classical study) and also puts into a different perspective the sys-
tematic operations on sterling bills conducted by the Banque de France. Their contri-
bution adds further value to a volume whose richness of historical insights makes a 
rewarding reading for anybody interested in the financial history of Western Europe. 
STEFANO BATTILOSSI, Universidad Carlos III Madrid

London and Paris as International Financial Centres in the Twentieth Century [book review].

http://e-archivo.uc3m.es/bitstream/10016/5586/1/london_battilossi_2008.pdf

London and Paris as International Financial Centres in the Twentieth Century [book review].

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics