Frankfurt. It is bitter news for the financial center of Frankfurt: the metropolis has left the top 20 of the most important financial centers in the world and is now only in 29th place. This is shown by the Global Financial Center Index, which is considered the most important ranking of international financial centers and is published twice a year.
The city fell 14 places. In Western Europe, Frankfurt ranks ninth behind London, Zurich, Geneva, Luxembourg, Lugano, Paris, Copenhagen and Amsterdam. The German financial metropolis ranks fifth within the European Union (EU). In global comparison, Asian cities in particular have seen growth.
The loss of importance is not just a problem for Frankfurt. If the financial center of the Federal Republic loses relevance, Germany as a business location will suffer.
“A financial center is part of the economic infrastructure,” says Hans-Peter Burghof, professor of banking and financial services at the University of Hohenheim. “If it becomes less important, access to large amounts of capital may become more difficult for German companies – especially for smaller companies that are less able to access international markets,” he says.
For Heiner Herkenhoff, General Manager of the Association of German Banks (BdB), an internationally competitive financial center is also important for the German economy because it “supports investments and innovations and thus co-finances growth and transformation,” he says.
According to Andreas Prechtel from the Association of International Banks (VIB), Germany is heavily dependent on export and project financing abroad. International banks bring in networks for this purpose. “Your presence in Germany is an important location advantage,” he says.
Handelsblatt spoke to numerous experts from business, science and politics. They explain why Frankfurt has fallen back in the rankings - and list seven measures how the financial center can return to the top of Europe.
1. Binding talent to Frankfurt
The experts cite local specialists as the central lever. “A lively financial center brings talents together,” says Burghof. This is where specialist knowledge and ideas come together. “Frankfurt is the city where people talk about money,” he says. If skills migrate abroad, Germany loses its innovative strength and development potential.
Hubertus Väth, Managing Director of the Frankfurt Main Finance location initiative, adds: “The competition between financial centers is a competition for international skilled workers.” Frankfurt has good conditions for this: a high density of financial institutions, short distances, good transport connections and international schools. But when making location decisions, the question of how quickly skilled workers and their families can actually arrive is also important, says Väth.
2. Make it easier for international skilled workers to arrive
In Germany, it is “a separate and complex process to also obtain work permits for partners,” says Väth. “Today that is alien and archaic thinking.” There could be waiting times of several months in Germany, says the expert, while in Amsterdam, Luxembourg, Copenhagen and Paris it is only days.
An amendment that guarantees that cases will be processed in less than four months should help, says Väth. “It’s just not competitive.”
3. Improve local tax conditions
Tax issues play a role for the financial center in attracting international skilled workers and processing capital gains across borders.
When it comes to taxing capital gains, Markus Erb from the Association of International Banks in Germany (VIB) relies on the EU FASTER directive. It is intended to standardize, accelerate and digitize procedures for refunding overpaid withholding tax and be applied from 2030.
The income tax burden also influences how attractive Frankfurt is perceived as a financial center. Väth refers to special tax regulations for so-called impatriates in other European countries - international skilled workers who move to a country from abroad.
“Of course, no one decides the center of their life solely based on income tax,” he says. “But anyone who thinks that such magnitudes don’t matter when it comes to international talent is wrong.”
4. Further relaxation of labor law
The labor market rules for internationally active financial companies also determine the choice of location. After Brexit, protection against dismissal for risk takers at major banks was relaxed in 2019. A second future financing law planned for 2024 envisaged extending these rules to the entire financial sector.
From January 2027, the coalition is planning a cross-industry rule for employees with a gross annual income above 177,450 euros. The employment relationship could then be terminated for a court-determined severance payment without the employer having to explain reasons for termination.
Christian Picker, labor law expert at the University of Tübingen, says: “The fact that top earners can leave in exchange for a legally limited severance payment that is therefore sufficiently predictable for employers is an important reform step.” This relaxation of the high level of statutory protection against dismissal strengthens the location across all sectors.
5. Create reliable infrastructure
Infrastructure improvements also offer potential for Frankfurt. "Reliable infrastructure and political stability have long been one of Germany's most important locational advantages. Now they are one of Germany's weaknesses," says Väth.
Especially for Frankfurt as one of the most important data center locations in Europe, a reliable power supply and powerful networks are strategically important - for cloud, data, AI and cybersecurity, he says.
According to Herkenhoff from the BdB, this is also crucial so that banks can implement digital business models, artificial intelligence and new technologies more quickly.
Alexander Lorz (CDU), Finance Minister of the State of Hesse, says: “With our excellent digital infrastructure, the international airport and the strong presence of the European Central Bank (ECB), the Bundesbank and global financial institutions, Hesse offers an attractive environment.”
6. Develop strengths as a result of Brexit
After Brexit, Frankfurt gained in terms of banks, while Luxembourg and Dublin benefited more from the fund industry, says Prechtel from VIB. His colleague Erb points to the presence of the European Central Bank (ECB) in the city, the Bafin and the Bundesbank.
University professor Burghof, however, sees the situation more critically than the association representatives. “After Brexit, Frankfurt had a strong starting position, but did not gain as much as it could have,” he says. The headquarters of the European Banking Authority went to Paris. "In London, promoting the financial center is part of the mayor's mandate. Germany has not developed a comparable political priority."
7. Promote cooperation between financial centers
Frankfurt is currently in 45th place in the Fintech ranking. The Ministry of Finance promises to promote the digital infrastructure and the establishment of Fintechs in Hesse.
The comparison with Munich is noteworthy. Munich rose in the ranking as one of the few financial centers in the EU. The city has built a “visible innovation ecosystem” from two strong universities, UnternehmerTUM, international talent, companies and private capital, says Väth.
