Guernsey Press

OPINION: Taking the long view

Strategy is a long-term game, says Andy Sloan – just ask the Russians...

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Gazprom headquarters in Moscow. (30528541)

I WAS recently reminded of a conversation I had at the top of Gazprom’s tower block HQ in Moscow back in 1998. I was in the PR department, chewing the cud, talking through the various pipeline projects that were, if you’ll excuse my paucity of vocabulary, in the pipeline. The guys were basically explaining Russian foreign policy – sorry, Gazprom’s business strategy.

The proposed web of pipelines, they explained, would make Western Europe completely dependent on Russian gas for its energy.

‘And then...!’ they said.

I was reminded of it because the Russian reaction to European sanctions included the threat that the price of European gas is going up. They have threatened to switch it off to the Ukrainians several times.

I guess that is not going to do so much harm during one of the balmiest summers we have had for a few years (remember the timing of the miners’ strike in the 1980s?) but the threat of fuel shortages and an old-fashioned supply shock hangs over Europe if matters rumble on through the winter without resolution.

As you will have figured the moment I referred to the balmy summer, this isn’t me writing about the present day crisis in the Ukraine. This is an excerpt from something I wrote nearly eight years ago on the 2014 crisis. Or rather they’re both about the same crisis. In eight years, it didn’t just go away.

No, I’m not having a ‘I’ve not got a clue what to write about so I need to fill space’ moment – it’s just a rather self-ingratiating start to today’s column to make my point that strategy is a long-term game and we have to navigate the world as it is, not as we’d like it to be.

The Russians planned to use gas supply as an economic weapon back in the ’90s. If I knew about it then, so presumably did Western governments. That Russia has designs on the Ukraine should not come as a surprise when we have a quick look at the maps of the region circa 1945, 1914 or 1812. For the best part of the last 200 years Ukraine was part of the Russian Empire. Given this, is Macron’s cheese-eating surrender monkey Finlandisation solution so unpalatable? It’s clear no one in the West is willing to physically fight if Russia invades Ukraine, which hardly augurs well for any realistic prospect of Nato membership.

This willingness to accommodate the world as it is, sometimes known as amorality and sometimes hypocrisy, is a particularly well-developed character trait on the Continent. It’s one of the many reasons why the Brits found it so difficult to get along in the EU.

What’s all this got to do with us? I hear you say. Didn’t you say last month that you’d be writing about global finance and economic issues relevant to us, with a bit of a sustainability bent throw in?

Well, here goes…

When I worked for Gazprom in the ’90s (or rather when they were a client of mine) I learnt that the Russians quite liked the English. They consider us kindred spirits. Together with a major dose of realpolitik (a very warm welcome) this view readily explains the ease of development of Londinski in the nineties and noughties. This realpolitik obviously extended to not being too concerned with the source of funds. As everything had been owned by the Soviet State up to 1991, it was a bit of a rude question, particularly given the carnage from the IMF’s prescribed free market shock therapy. (There’s a similar issue with much Chinese wealth today.)

Now before I get a call from the GFSC, I’m not condoning criminal behaviour, just making a point about UK financial services strategy.

Actually, what is my point? The editor had asked me this month if I’d like to review Alistair Sutton’s polemic in the IFC Review: ‘Brexit one year on: Impact on the UK’s Overseas Territories’ (the IFC Review’s incorrect headline, not mine).

Spoiler alert: after describing the constitutional and legal relationship between the world and his dog (OK, Guernsey and the EU, but it felt like more) both before and after Brexit, his considered assessment of the impact of Brexit one year on was… ‘it’s too early to say’.

For those who don’t know him, Alastair’s a lovely chap. Scottish. Lawyer. Been working in Brussels for decades. Rather in awe of the place. I’m long enough in the tooth to have worked with him back in the pre-Channel Islands Brussels Office days. I do like Alastair, but he does have that lawyerish tendency of saying rather a lot without providing any new information.

I don’t think it is too early. Not least because four years ago I outlined five factors underpinning my positive view on the likely impact of Brexit (it’s on LinkedIn). I made many similar assertions in a Guernsey Finance blog two years ago (it’s on the website) making the additional point that we’d get a Brexit bounce during the transition. Looking at the recent funds figures, I’d say we got it.

I’m not going to go over those factors here (but feel free to go online). The core premise was that if the City flourished outside the EU, then we would too. I published research proving the link between Guernsey and the City when I was States economist.

With Brexit the Tories took on the vested corporate interests milking the easy life of the EU. To flourish, I said (and I expected), the City needed to rediscover its ‘internationalist’ DNA. If you missed it, UK financial services exports to the US outstripped those to the EU last year.

So why did our finance sector stagnate in the 2010s while the City continued to flourish? Because our interests weren’t aligned. Bluntly, the City grew flabby serving EU markets. In particular, advising on the EU’s single market rulebook. A rulebook being written to, among other things, keep us out. And it didn’t help that David Cameron gave us a crowd-pleasing kicking in early 2013. But then he had a habit of strategic errors.

Post-Brexit we are joined at the hip to Blighty. No matter how ‘competitive’ the UK gets, we’re complementing the UK at the macro level, not competing against it. We still provide the security of one degree of separation. Boris’s political regime has been very benign to offshore to date.

So it’s important that the UK has a clear strategy for the sustainable growth of the City. It’s been finally recognised by HM Treasury that regulatory competition is a key factor to post-Brexit success. Many consultation papers have been issued and sustainable finance rules are the first concrete example of a deliberate divergence of the rulebook (the International Sustainability Institute’s report on this is published next week).

The big risk for us is the UK missteps. It might appear callous, but the most concerning news for me about the Ukraine crisis was that the UK was scrapping the foreign investor visa regime. It was an old EU hangover, but I didn’t hear of any of the 27 EU member states doing the same. Boris accompanied it with a bit of a tub-thumping speech on stopping Russia raising money in London. A bit ‘stable door’, but it went down well with the blue rinse Tory membership.

Boris has become prone to making short-term tactical mistakes moves and they don’t augur well for a strategic approach to the economy and its sustainable growth. Give Gazprom its due, it had its eye on the long term. Boris needs to too. Strategy and sustainability are for the long term, not just for Christmas.

Success – squeezed in the sustainable bent at the end there! Next month I’ll be doing it properly, pondering Guernsey’s long-term fiscal and economic sustainability.