Milan is challenging Frankfurt, Dublin, Luxembourg, Amsterdam, Paris, Milan and Madrid in the race to obtain a post-Brexit financial boost after the UK leaves the EU.
Once the UK leaves Europe’s single market – currently scheduled to happen on the 29 March 2019 – the many global banks and asset management companies that have made London their EU base, will lose their passports hampering them to serve clients across the remaining 27 EU states.
Amid talks moving on to future relations between the UK and the EU, – and a plan for a two year transition period to soften the way to post-Brexit relations – what seems to be clear now is that London will remain Europe’s leading financial hub. Nevertheless, other cities remain keen to grab as much as they can.
Milan is one of those cities increasing its efforts to get a share of London’s asset management industry after Brexit, despite Italy’s initial attempts to attract fund companies in 2016 were rocked by prime minister Mateo Renzi’s resignation following his failure to push through some constitutional reforms in a referendum. The uncertainty arising from the upcoming election makes Milan’s aim far from straightforward.
On 4 March 2018, Italy will be holding general election (just over a year later Paolo Gentiloni became prime minister) raising concerns in Italy and abroad, given the uncertainty of the election’s outcome.
The vote comes at a time when the country’s economy is gaining some pace. According the latest data from UBS Italy, the country’s real GDP grew by 1.5% in 2017 and is expected to grow by 1.3% in 2018.
“With regards to fiscal policy, we expect further improvement in the primary balance to a 2%-of-GDP surplus, resulting in a deficit of 1.6% when taking into account interest expenditure. All in all, we expect public sector debt as a percentage of GDP to slightly decrease to 131%, around the level recorded in 2013–14”, UBS adds.
Luca Rescigno, investment research analyst at the Milan-based boutique Marzotto Sim Spa, comments: “The elections are going to play a key role in deciding the future of Italy as well as the one of Milan. Further pro-business reforms are still needed and another political stagnation may damper the small progresses done in the last five years.”
Last year, Italy made some tax changes to encourage fund company executives and portfolio managers’ move from London to Italy. Incentives included a 50% reduction on income tax for five years for middle managers and a flat €100,000 annual tax of foreign earnings for wealthy individuals (regardless of how high that income is) lasting for 15 years.
The law, reserved just to individuals (not companies) who move their fiscal residence to Italy, could be extended to family members with an additional flat rate of €25,000 per person.
Local media reported that Fabrizio Pagani, chief of staff in Italy’s finance ministry, admitted that realistically “they were not expecting big companies to make wholesale moves from London to Italy but that Milan had every chance to get its share if a diaspora from London taked place. “
In this respect, Marzotto’s Luca Rescigno considered: “Although Milan is a very vibrant and international city that has significantly changed over the last years positioning itself as one of the main European financial hubs, there are still some institutions in place not very business friendly. Hence – among other reasons – I do not expect Milan to overtake London in the near future.”