What Hamburg as a financial center can learn from Dublin

Under the leadership of the Finance Authority and the Chamber of Commerce, a delegation of Hamburg’s financial industry (representatives from politics, universities, banks, insurance companies, FinTechs, asset managers and consultancies) visited the Irish capital Dublin for two days in September 2023 to see which features and initiatives of the financial centre could possibly be transferred to Hamburg or reinforce measures set up in Hamburg.

The impressions described below do not represent an agreed position, but personal impressions of the authors.

Ireland, with its focus on Dublin, can certainly be described as a start-up nation, like Israel or Singapore, which have built modern economies within half a century, without mineral resources or a strong base in industrialisation.

From Europe’s poorhouse to a high-tech location

Ireland only gained formal independence from Great Britain almost a hundred years ago (1922) after a bloody war of independence and civil war. The country was ravaged by famine and related waves of emigration several times in the 19th century and lost almost 2 million inhabitants as a result. A total population of less than 3 million remained at times. Agriculture and sheep farming and a few shipyards characterised the country, which was poor by European standards.

Driving through Dublin today, old Georgian buildings alternate with the ultra-modern glass palaces of tech companies like LinkedIn, Google or Zendesk. Young people dominate the streets (Ireland has the youngest population in Europe). 22% of workers in the tech industry (or 17% of all workers) are not from Ireland; LinkedIn even counts 55 different nationalities at their Dublin site. 17 of the world’s 20 largest banks have branches in Ireland, education levels are comparatively high, and the population has recovered to 5 million Irish in recent decades.

Tax regime and attractive location factors

That this success is only due to the – from a continental European point of view as an offshore location – infamous low tax policy (corporate tax rate of 12.5%) is certainly a legend in this simplicity. What is true is that in 1987 a new financial district was built on an old shipyard site (Dublin Docklands) and foreign financial institutions were attracted with a low special tax of only 10% (meanwhile again 12.5%). As a Hamburger, one might distantly recall the successful history of the Speicherstadt and its duty-free status as a free port, which was wrested from the German Empire to whose customs union Hamburg belonged, in the 19th century.

The attractiveness of a location is, of course, made up of many factors and can be answered from different perspectives.

For foreign workers, there is – besides an interesting low tax rate – a whole range of advantages in the country. English makes it easier for many to gain a foothold. Integration programmes for newcomers make it easier to get started. A key factor is that foreign workers are not “at the mercy” of one employer. Since there is an extensive job offer in the tech and banking sector, workers do not have to immediately deal with a retreat to their home country in case of a job change or loss but find sufficient alternatives in Ireland. This also applies to affected family members or partners.

What attracts companies?

The influx of companies started decades ago with US corporations that wanted to set foot in the EU for the first time. Banks, insurance companies, asset managers and other financial groups followed, admittedly also because of the tax advantages. But a talent pool was also able to form, which was later used by the tech scene, which is now particularly courted. While university graduates are also an essential talent pool, for professional growth, corporations need equally experienced practitioners.

Parallel to the high density of financial and tech companies (the demarcation is disappearing more and more), a professional financial supervision also developed. This is interesting not, as some think, because of its particularly lax treatment of financial institutions, but – so we were told – because it carries out highly qualified examinations itself, which represent a kind of seal of approval to the outside world for the audited financial companies. Moreover, it should not be forgotten that banks and payment service providers licensed in Ireland can operate throughout the EU due to so-called passporting, and Ireland thus represents the obvious gateway to Europe for non-European financial service providers.

In addition, the Central Bank of Ireland provides an innovation hub, for example. This is not a regulatory sandbox within which FinTechs could operate with reduced regulatory requirements, but a place where there is an intensive exchange with the financial regulator about innovations, and which thus contributes to the quality of new and growing FinTechs.

The government also initiates innovation support programmes such as IDA Ireland: Ireland’s Foreign Direct Investment (FDI) Agency, which helps attract formerly textile and now highly scalable digital business models to Ireland. It is interesting to see how IDA analyses exactly what types of companies can contribute to Ireland’s growth objectives and how they can be attracted.

Soft Facts

In addition, several other “soft facts” play a role in making Dublin attractive to qualified foreigners. Even on Monday evenings, live music still sounds late from the bars in the city centre. The close networking of the finance and tech industries makes joint initiatives and projects easier. And finally, the ever-present Irish humour and deep-rooted optimism (“today is a shitty day, but tomorrow will be the best day”) makes every problem look a little easier.

What can we take away from Hamburg’s perspective?

The question now is what we can take away from this trip to Dublin and the experiences we made there and apply to “Hamburg, our pearl”.

We were all impressed not only by the humour and optimism, but also by the huge support for the European idea and thus the EU in Ireland (more than 85% support for the EU). Moreover, extreme ideas and extreme parties have less than 1% approval. Unfortunately, neither is the case in Germany currently, and it requires a lot of joint work pro-Europe and against Nazis. Success stories help with both, and we were able to take some impulses and ideas back to Hamburg.

The power to set taxes is essentially limited for the Free and Hanseatic City to trade tax and land transfer tax. Corporate tax rates are decided in Berlin. Nevertheless, many examples of large foreign corporations setting up in Germany (Tesla in Brandenburg, Intel in Saxony-Anhalt) show that competitive framework conditions can be created. Moreover, despite all the prophecies of doom, the German social system and health care system are a locational advantage for the settlement of foreign talent, without which investments by foreign corporations would not be possible.

But what can we do in Hamburg to expand the financial centre and make it even more attractive for investors? A lot has already been done with the Master Plan, the Innofintech funding programme and the founding of FCH Finance City Hamburg GmbH, but the feedback from Dublin (and from the 2022 delegation trip to Israel) shows that these measures alone and on the current scale are not sufficient.

We see a need to catch up or optimisation opportunities in the following fields:

1. Existing innovation and funding programmes should be constantly compared with other initiatives. In addition, it should be checked again and again whether these programmes meet the needs of the companies, the potential customers, and the city / metropolitan region. If necessary or if there are promising options, the programmes should also be adapted.
2. There is a shortage of skilled workers everywhere, including in the financial sector. This applies equally to established providers as well as to start-ups and scale-ups. We have considerable bottlenecks here in Germany and in Hamburg, which in some areas may also jeopardise the maintenance of the operation of essential functions in the foreseeable future. We need new training concepts in the long term and targeted measures in the short term to be able to close existing gaps (know-how and manpower). Pragmatic, targeted and concerted actions by (higher) education institutions, business and politics are needed.
3. Hamburg grew up through trade, and trade thrives best in the context of cooperation (in the past the Hanseatic League, today the EU, for example). Cooperation is also a way to bring the financial sector in Hamburg forward. The cooperation of the German financial centres must only be a (first) step for Hamburg. There must also be genuine and not merely formal partnerships with international financial centres, with which one does not have to compete, but rather can create added value for all parties involved through exchange programmes for talents, the cooperation of innovation hubs or the mutual “bridge-building” for companies from the respective partner location.
4. We must become faster! Speed, among other things by reducing bureaucracy, is an important task and essential for all measures for Hamburg as a (financial) location; especially in the international context, we clearly have some catching up to do. The length of time between the adoption of the Masterplan for Hamburg as a Financial Centre and the actual establishment of Finance City Hamburg GmbH is a cautionary example. Hamburg can do better!
5. The city of Hamburg should also see itself as an innovator in financial services or promote innovations and actively support corresponding initiatives.

In addition, Hamburg should consciously use its existing strengths and emphasise them in start-up and settlement issues:

1. The combination of finance and the real economy, which is almost unique in Hamburg, gives companies from the financial services sector direct access to many relevant B2B customers.
2. The pronounced closeness of politics and the chamber of commerce, despite all the potential for optimisation in the environment of bureaucracy, enables fast and direct exchange, which can benefit companies that are considering a settlement.

We have seen what is possible with a lot of commitment and patriotism, and we wish these successes for Hamburg as well. Therefore, we may conclude with a quote from the Ulysses author James Joyce:

“I am tomorrow, or some future day, what I establish today. I am today what I established yesterday or some previous day.”

About the authors:

Dr. Nicholas Ziegertis the founder and managing director of OWNLY FinTech GmbH in Hamburg, which operates OWNLY Family, a family office software for private clients, and develops multi-asset reporting solutions for the financial industry as part of individual projects.

Jan Claas Bringezu is the founder and managing director of Gravning GmbH, a Hamburg-based consultancy specialising in all facets of payment transactions, across all channels and for all participants. In addition, he is involved in the development of Hamburg as a financial centre, among other things, as a member of the Committee for Financial Economics.