London Stock Exchange chief executive Xavier Rolet: Brexit impact would be "substantial" - Thatcher's Britain should lead, not leave, the European Union

New chief executive of the London Stock
If the LSE's merger with Deutsche Boerse goes ahead, Xavier Rolet will leave the combined company (Source: Greg Sigston / City AM)

Xavier Rolet believes the impact of a Brexit on the City would be "substantial" and "almost immediate" following the referendum.

Instead of exiting the European Union, the London Stock Exchange chief executive wants Britain to channel the spirit of Margaret Thatcher and lead the continent to a new era of strong economic growth.

Rolet was speaking to City A.M. during a frantic period during which he is attempting to finalise a merger between the LSE and Frankfurt-based exchange Deutsche Boerse.

If the deal goes ahead, the merged company will be based in London. But Deutsche Boerse's chief executive Carsten Kengeter would take up the same position in the new exchange. And Rolet would leave, in a move that he says "breaks my heart".

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Brexit would be "far worse than not good"

Like many others in the City of London, Rolet is looking nervously on towards 23 June, the date on which Britain will vote on whether to leave the EU.

And he doesn't hold back in expressing his view on the potential for a Brexit. "It's my humble opinion, based on my experience of what I do every day, that the impact on the City of London would be substantial, and almost immediate," Rolet says.

"There's many other things that would happen but if you move the clearing of a particular security as large as euro – the euro’s a big market, a big liquid market – out of London, everything goes with it. Syndication, origination, structuring, trading, management, as well as all the ancillary activities – the lawyers."

He adds: "And I'm not even the only one who’s said that. It’s not for us to tell people how they should vote, but in the area where we know what we’re doing because it’s our business, if a certain event happens, I don’t think it's illegitimate to say that in our opinion, this is what we think the outcome would be.

"And for the City of London it is not good – it is, in fact, far worse than not good. That's all I have to say.”

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How Thatcher's Britain can save Europe

The Frenchman's motivation for wanting a Remain vote is about more than just the welfare of the City of London. He also believes the UK can inspire others across the continent to growth.

He says the Eurozone has a "deep, deep competitiveness issue", which has led to the economy being unable to support education, healthcare, transportation and security.

He says: "That is no longer supported by an industry that is competitive enough and so states have been borrowing to keep that whole thing afloat. Because that's what voters want.

"And now the debt is coming due. So you need to find a different model so we can create wealth to pay for these things."

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Rolet suggests that other nations look on at the economic strength of London and the UK with "a certain amount of envy". But in order to try and improve their finances "they use policies, they use regulation - which is what is frustrating".

"The real solution to this," he says, "it's not about the UK involvement in Europe – it’s about UK leadership."

Rolet says EU countries are filled with "significant, frustrated minorities... entrepreneurs, business, professional, hard-working people" who want change that the UK can help inspire.

"We're not going to grab back business by forcing others to give it up on the basis of regulation and by building huge, protectionist barriers," Rolet says. "Or having frankly what is a corrupt model of central, statist management where resources are allocated inefficiently and many frankly wasted."

He adds: "You want to save capitalism? You want to make it popular? You need popular capitalism. I think Margaret Thatcher understood that. I know she's not always the most popular politician. But she effected the revolution that would be sorely needed in my humble opinion on the continent.

Read more: LSE and Deutsche Boerse agree on "merger of equals"

"And this is sort of leadership the UK could have: Don’t listen to what we say - we know you don’t like it - look at what we’ve done."

Pointing to the high proportion of Europe's SMEs that are based in the UK – 5.2m out of 23m – he points to shortcomings in the German, French and Italian markets.

"What Germany's lacking is an equity culture – the guys at Deutsche Boerse know that," he says. "Carsten I’ve known for 25 years – used to work with me at Goldman Sachs many years ago – he gets that. That's why they want the liquidity bridge. This is really important."

He adds: “We can re-calibrate Europe to make it think more competitively… The UK can say: We’ve done it. We’re not perfect, but we’re far ahead of you. Look at our unemployment, look at our SMEs, look at our innovation - why don’t you do the same thing? Don’t listen to what we say but imitate what we do. That kind of leadership is needed.”

Rolet believes that if the UK can implement this change, the continent will “realign” itself with London and “make it a lot easier to deal so that the competitive strategy is no longer trying to drag things back from competitive nations by using back-handed regulation”.

Read more: London Stock Exchange boss could get £16m after merger

London, "the original emerging market investor in America", turns attention to China

Rolet emphasises that a merged LSE and Deutsche Boerse would not seek to become a "European champion – because our business is global".

And he’s keen to suggest this is not new. "London was the original emerging market investor in America," he says.

"When America was the emerging market of the day, was the China of the day – steel, cattle, oil – a lot of capital came from the UK. So London has always had a global projection."

And Rolet has the LSE's sights firmly set on China. He speaks passionately about plans to connect the LSE and Shanghai stock exchanges, "part of the strategy we’ve pursued for seven years now". Under the stock connect, companies with primary listing in the UK would also enjoy secondary listing in China.

Asked if China's economy is a concern with this partnership in mind, Rolet says the country is in the middle of a "comprehensive restructuring of the Chinese economy" and is bullish about its prospects.

"What we're seeing in China today is not a model that is imploding and going from being a global star to the laggard," he says.

"It's an economy that is re-calibrating. They have their own governance, it's different from ours but they understand that you need a more balanced economy with greater share of growth afforded to the population."

He predicts this re-calibration will last 18 months to two years and expects a positive outcome. "If it does happen, putting an $11 trillion economy on a five per cent sustainable growth path, sustained by an increase in consumer demand, will be very valuable."

"It breaks my heart to leave"

If the merger goes ahead – and he expects another year to pass before completion – Rolet will leave the company.

He has promised his wife he will take a week off work. After that, the 56-year-old says he has not made plans.

Rolet believes that if the deal is completed, he will leave the LSE as part of the "best positioned exchange in the world".

He adds: "It breaks my heart to leave... I do love this company. It’s been seven full-on years and it’s going to be another year of very hard work on what is a complicated transaction. And I would have loved to have run the largest exchange in the world."

But, he says, because he insisted upon the company being based in London, the deal "required a significant offset – and I concluded earlier on that the CEO [position] was going to be about the only thing that was going to do it."

He adds: "So I thought about it, which is why I offered it. But to say I did this in a light-hearted way, or not understanding what I was leaving on the table – no, I understand that.

"But that’s life. Life goes on. I love this company and I think this is the right deal."

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