City thriving outwith euro, says Greenspan

THE City of London is thriving outside the eurozone and has not suffered from Britain’s decision not to join the single currency in the first wave, Alan Greenspan said yesterday.

In a visit to London, where he will receive a knighthood today, the chairman of the US Federal Reserve said that London has ceded no ground to Frankfurt in its command of the foreign exchange market.

His speech was used by the "No" campaign to argue that Gordon Brown’s role model has effectively answered the most important of his five economic tests.

Greenspan spent yesterday visiting the Chancellor at the new HM Treasury building. He was introduced by Brown as "America’s greatest central banker - not just of our generation but of all time".

Greenspan, in turn, praised the Chancellor’s stewardship of the UK economy and said that, in spite of the single currency, London - and New York - remain at the "top of the financial pyramid". He added: "London has stayed on top in the provision of financial services despite the emergence of the euro, which some expected would divert a significant share of foreign exchange trading to a single centre on the continent.

"Although financial sector activity in Frankfurt has increased substantially in the past few years, largely reflecting the growing importance of the euro, trading volumes there are still well below those of London and New York."

He noted that the Square Mile accounts for twice the volume of foreign exchange trading as New York, and also commands a "substantial share" of the world’s trades securities.

The City of London, whose contribution to the UK’s national income is larger than the whole of Scotland, is one of Brown’s five economic tests. The Treasury will decide whether it would be better off in the eurozone.

George Eustice, director of the "No" campaign, said afterwards that the Chancellor has now been told by one of the world’s greatest financiers that Britain does best by keeping the pound. Alan Greenspan is right. The City is thriving outside the euro, but giving up the pound would put this success at risk," he said.

However, Robert Guy, chairman of pro-euro lobby group The City in Europe, said the Square Mile’s firepower would be boosted by joining the euro.

"Joining the single currency would strengthen the City’s position because we would be able to use our superior skills, knowledge and reputation inside what will soon be the world’s single biggest financial marketplace," he said.

In his evening speech, Greenspan said he believes that the impact on oil prices of a military strike against Iraq would be less pronounced than in previous wars. The fall of oil prices in general suggests that any spike has got to be "significantly larger" to have an impact this time around.

Greenspan attended both a lunch and dinner at the Treasury yesterday. It has now moved out of Whitehall, and settled in to its open-plan facilities opposite St James’s Park, built in a PFI deal.