The new Global Financial Centres Index, GFCI 40, has been published – and the reactions could hardly be more varied. Finanz-Szene believes the ranking can safely be “ignored.” Börsen-Zeitung and Platow Brief, by contrast, speak of Frankfurt’s crash. Which is it?
At first glance, the figures do indeed look dramatic. Frankfurt falls from 15th to 29th place. Even more remarkable: for many years we could say with good reason that Frankfurt was the leading financial centre in the EU. Now Amsterdam, Luxembourg, Paris and even Copenhagen are suddenly ahead of us.
Frankfurt only number five in the EU? That should matter to us. But before we fall into alarmism, a closer look at the ranking is worthwhile. For there are good reasons not to accept the GFCI without qualification.
A crash that is actually four points out of 1,000
First, Frankfurt’s actual score does not show a dramatic decline at all. Its score falls only from 734 to 730 points. Four points fewer – but 14 places lost.
That alone shows how cautiously rank changes must be interpreted. In a tightly packed field, small changes in score can cause considerable movements in the ranking. The problem becomes even clearer when one looks at individual financial centres across several editions.
Tokyo long ranked among the world’s leading financial centres, then in recent years fell out of the top 10 within a relatively short period and then even to a rank beyond the top 20 – and today stands again at number 6. Has Tokyo’s financial centre first deteriorated so fundamentally within a few years and then recovered just as fundamentally? Hardly.
Or take Moscow. War, sanctions, the withdrawal of numerous Western banks and companies and the extensive decoupling from the Western financial system have fundamentally changed Moscow’s international role. A ranking of international financial centres should actually reflect such a structural break immediately and massively. The development of the GFCI, however, does not reflect this reality. Moscow has repeatedly gained and in the latest GFCI has risen by another 3 places. Who considers that plausible?
Some other placements in the top 20 also raise questions when compared with metrics such as capital market volume, assets, employment, international bank presence or importance for cross-border financial flows. In numerous financial centres in the top 20, leading international banks from other countries are almost entirely absent. These are supposed to be leading international financial centres?
The GFCI is simply not a financial centre GDP. It combines a large number of quantitative indicators with surveys and perceptions. And perceptions can change quickly. So just ignore it, then? I believe that would be exactly the wrong conclusion. For perhaps that is precisely where the ranking’s most important message lies.
Perception is not a side issue for a financial centre
A financial centre does not live only on balance sheet totals, trading volumes and employment figures. It also lives on where fintechs are founded and where international talent wants to move with their families.
And such decisions are also influenced by perceptions. If Frankfurt loses attractiveness in international comparison – or is even merely perceived as less dynamic – we should not console ourselves with the fact that a ranking has methodological weaknesses.
We should ask: Are there real problems behind the signal? Unfortunately, for some points the answer is: yes.
1. International top talent: Frankfurt must become more competitive
Competition between financial centres has long also been a competition for people. Frankfurt has major advantages here: short commutes, high quality of life, comparatively moderate housing costs compared with London or Paris, international schools, excellent transport connections and an enormous density of financial institutions.
But Germany also has a considerable disadvantage: high taxes and comparatively few tax incentives for internationally mobile top talent. Other European financial centres have recognised this.
Paris, Milan, Amsterdam and especially Luxembourg have or have had special rules for so-called inpatriates. Under certain conditions, they reduce the tax burden on internationally recruited top talent or take into account additional costs of an international move.
A simple calculation by Finance Matters shows how large the differences can become. With gross income of 250,000 euros, depending on assumptions and the applicable regime, roughly the following remains:
Frankfurt: 142,000 euros
Paris: 158,000 euros
Amsterdam: 171,000 euros
Milan: 186,000 euros
Luxembourg: 194,000 euros
Between Frankfurt and Luxembourg, this can amount to a difference of more than 50,000 euros net per year. Over five years, we are talking about more than a quarter of a million euros.
Of course, no one chooses where to make their home exclusively on the basis of income tax. But anyone who believes such magnitudes play no role for international talent is mistaken.
Money, however, is only one side of the coin. Anyone who wants to win a highly qualified employee from New York, London, Singapore or Tokyo for Frankfurt must today explain why the work and residence permit for them and their family can take months, while in Amsterdam, Luxembourg, Copenhagen and Paris it takes only days. In international competition among financial centres, such timeframes are a comparative disadvantage for the location.
Other financial centres treat the settlement of international top talent as what it is: part of their economic policy. Singapore, Dubai and Luxembourg specifically advertise fast procedures, tax incentives and internationally oriented authorities. Britain, too, despite Brexit, has its own interest in keeping international financial and technology talent in the country and attracting new talent. There, the financial centre, despite Brexit, has created 80,000 new jobs.
We have indeed long been working on a fast track for international key staff with a one-stop shop for work and residence permits, but it is not foreseeable that processing times will become internationally competitive – or whether working partners and children were even considered.
If Frankfurt wants to win the best minds in the world, Germany must also signal to them: We want you to come.
2. We must regain our traditional strengths: infrastructure and political and legal stability
Perhaps this is the most troubling signal of the GFCI. Germany and Frankfurt could long rely on two locational advantages that were by no means a given elsewhere: excellent infrastructure and political as well as legal stability.
In the GFCI, Frankfurt long belonged to the international top group in these categories. In the meantime, that is no longer the case. And here, too, one should not argue about the ranking’s methodology but ask why the perception has changed. With infrastructure, the problems are now internationally visible.
The delays and cancellations of Deutsche Bahn have long ceased to be an internal German discussion. The Financial Times, The Economist, The Guardian and international travel and business media regularly report on the problems of German transport infrastructure. Anyone travelling as an international visitor from Frankfurt to a business appointment in another German metropolis knows the problem.
At the same time, Frankfurt is one of Europe’s most important data centre locations. The Frankfurt/Rhine-Main region is one of the largest data centre clusters on the continent; the location is often described internationally as Europe’s most important internet hub. Precisely for a financial centre whose future depends on cloud, data, AI, digital trading and cybersecurity, this infrastructure is strategic.
But new data centres in the region also encounter lengthy approval processes, electricity and grid connection issues and increasingly complex regulatory requirements. This points beyond Frankfurt: Germany’s lack of ability to plan, approve and build infrastructure quickly has itself become a locational issue.
Even more fundamental is the loss of the perception of political and legal stability. This strength was part of the German business model for decades. If international decision-makers today assume it less as a matter of course, alarm bells should ring for us.
For tax rates can be changed. Support programmes can be launched. Trust in the reliability of a location must be earned over years – and can be lost much faster.
3. The Bahnhofsviertel is not a local social problem – it is the gateway to our financial centre
There is an issue that we in Frankfurt have treated as a municipal problem for far too long: the condition of the Bahnhofsviertel. Anyone arriving in Frankfurt by train and walking towards the banking district experiences one of their first impressions of the city there. And this impression has now itself become an international topic.
International media have reported in recent years on the situation around Frankfurt Central Station and in the Bahnhofsviertel. German-language media also regularly take up the topic. In addition, there are videos and posts by international visitors on YouTube, TikTok and Instagram.
They describe drug use, open drug scenes, crime, neglect and a visible loss of control around one of Germany’s most important transport hubs. One can debate whether some portrayals are exaggerated. But for the reputation of a financial centre, what matters in the end is only how others perceive us.
We invest a lot of money and energy in marketing Frankfurt as an internationally attractive financial centre. At the same time, for years we have accepted a condition at the city’s central gateway that communicates precisely the opposite. The Bahnhofsviertel is therefore not merely a task for social, health or security policy: it is a matter of economic development policy.
Frankfurt needs a visible new start here – with security, cleanliness and consistent social and drug policy. Not at some point, but with measurable targets and a clear timetable.
4. A leading financial centre must also be a leading fintech location
Perhaps this is the biggest missed opportunity. Frankfurt actually has almost ideal conditions for fintech: ECB, Bundesbank, Deutsche Börse, Eurex, banks, insurers, asset managers, supervisors, universities and, with TechQuartier, even an institutional platform for the ecosystem.
Nevertheless, Frankfurt has so far not translated this starting position into a corresponding international fintech position. The GFCI also shows Frankfurt far from the world elite in its fintech ranking. Other startup rankings tell a similar story. For a leading financial centre, that is too little.
Particularly striking is the comparison with Munich. Munich was one of the few EU financial centres to gain. The driver is evident: in their European ranking of leading startup hubs, the Financial Times and Statista placed UnternehmerTUM first in Europe. In the same ranking, another Munich player, the Start2 Group, followed at the top. BayStartUP in Nuremberg also belonged to the European top group.
That is the crucial point: Munich has built a visible innovation ecosystem from a strong university, international talent, companies and private capital. Frankfurt has the financial institutions – but not yet the same dynamism in spin-offs, venture capital and technology-driven entrepreneurship.
The question is therefore less whether Frankfurt needs a few more fintechs, but: Why has Europe’s perhaps largest concentration of financial institutions not yet produced a correspondingly leading innovation ecosystem? The Blockchain Centre of Frankfurt School of Finance, Futury and the newly aligned Tech Quartier all point in the right direction. But is it enough to correct the mistakes of the past?
The AMLA now even offers us a new opportunity. The new European Anti-Money Laundering Authority has its seat in Frankfurt. Why should Frankfurt not become, through it, Europe’s leading location for RegTech, ComplianceTech and AI-supported financial-crime prevention? That requires more than conferences and funding programmes. We should develop our own fintech model from Frankfurt’s unique assets.
Frankfurt has not become a worse financial centre overnight
For these reasons, we should neither dramatise nor ignore the GFCI. Four points fewer in the GFCI certainly do not mean a crash. But perhaps the misplacement is the wake-up call at the right time. For the four themes behind it are real: talent. Infrastructure and reliability. The image of our city. Innovation.
And we know that Frankfurt can act. The best proof of that was Brexit. When Britain voted in 2016 to leave the European Union, it was by no means certain which financial centre on the continent would benefit most.
Frankfurt did not wait at the time. The city, the state of Hesse, the federal government, supervisors and financial centre organisations jointly courted institutions and jobs. We went to London, New York, Tokyo and Seoul. We spoke with banks, addressed regulatory problems and positioned Frankfurt internationally.
The result is impressive: around 15,000 additional jobs, massively increased bank assets and around 60 international institutions that have newly established or significantly expanded their presence in Frankfurt.
Brexit showed: When Frankfurt has a common goal, Frankfurt can deliver.
That is exactly the determination we need again now. Not because of a ranking, but because competition between financial centres has become harder.
Paris is investing. Luxembourg is positioning itself. Amsterdam is further developing its strengths. Milan is courting international talent. Munich shows how strongly a financial centre can benefit from an excellent university and a high-performing startup ecosystem. And outside Europe, Asia’s financial centres are growing with enormous ambition.
That is why the GFCI 40 is a wake-up call. And with a wake-up call, one always has two options. One can turn it off, roll over and go back to sleep. Or: one gets up.
I opt for getting up.
