This article was downloaded by: [Aston University]On: 27 January 2014, At: 05:57Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

Business HistoryPublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/fbsh20

Siegmund Warburg, the City of Londonand the financial roots of EuropeanintegrationNiall Ferguson a ba Laurence A. Tisch Professor of History , Harvard University ,Cambridge, MA, USAb William Ziegler Professor of Business Administration , HarvardBusiness School , Boston, MA, USAPublished online: 08 Jun 2009.

To cite this article: Niall Ferguson (2009) Siegmund Warburg, the City of London and the financialroots of European integration, Business History, 51:3, 364-382, DOI: 10.1080/00076790902843916

To link to this article: http://dx.doi.org/10.1080/00076790902843916

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all the information (the“Content”) contained in the publications on our platform. However, Taylor & Francis,our agents, and our licensors make no representations or warranties whatsoever as tothe accuracy, completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verified with primary sourcesof information. Taylor and Francis shall not be liable for any losses, actions, claims,proceedings, demands, costs, expenses, damages, and other liabilities whatsoever orhowsoever caused arising directly or indirectly in connection with, in relation to or arisingout of the use of the Content.

This article may be used for research, teaching, and private study purposes. Anysubstantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions

Siegmund Warburg, the City of London and the financial roots of

European integration

Niall Fergusona,b*

aLaurence A. Tisch Professor of History, Harvard University, Cambridge, MA, USA; bWilliamZiegler Professor of Business Administration, Harvard Business School, Boston, MA, USA

The process of European economic integration slackened in the 1960s. Nationalmarkets for goods, most services and labour were not being integrated becausethey were not really being liberalised. The exception to this rule was financialservices, one of which – the sale of long-term corporate and public sector bonds torelatively wealthy investors – became integrated in a quite novel way in the courseof the 1960s. The rise of the so-called ‘Eurobond’ market was a majorbreakthrough in the history of European integration but it was a largelyspontaneous result of innovation by private sector actors, led by SiegmundWarburg. In some measure, no doubt, the bankers’ primary motive was the profitmotive. Yet there is also compelling evidence that Warburg and his associates alsohad a political agenda. They regarded it not only as a way of making money, butalso as a potent device for advancing Europe’s political integration. In particular,they appreciated that European capital market integration could reinforce thecase for British membership of the EEC. The resurrection of London as Europe’sprincipal financial centre, even at a time of economic and exchange rate weakness,was a major achievement in its own right. But it was also a crucial for theresumption of European integration in the 1970s.

Keywords: bank operations; government bonds; international bonds;international capital market; economic history

You are the unrivalled master in business mergers. As the most prominent Anglo-German you are the best qualified to work for the consolidation of Europe. With yourbackground, knowledge, and your constructive, creative genius you should be successfulin completing this noble task of peace . . . [leading] towards the unity of Europe, which Ifervently hope will be realised.

Fritz Oppenheimer to Siegmund Warburg, 24 May 19661

I

The economic integration of Western Europe after World War II proceeded by acircuitous route. It began with the creation of a ‘Community’ to regulate theproduction and pricing of coal and steel in six European states: West Germany,

*Email: nfergus@fas.harvard.edu

Business History

Vol. 51, No. 3, May 2009, 364–382

ISSN 0007-6791 print/ISSN 1743-7938 online

� 2009 Niall Ferguson

DOI: 10.1080/00076790902843916

http://www.informaworld.com

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

France, Italy, Belgium, the Netherlands and Luxembourg. The Treaty of Rome thencreated a ‘Common Market’, formally prohibiting barriers on trade between thesecountries. Trade between them had been growing rapidly before the formation ofthis European Economic Community; it continued to grow thereafter – as did worldtrade generally. However, in other respects economic integration proceeded slowly.In agriculture the development of an integrated market was positively hindered bythe persistence of national subsidies until a Common Agricultural Policy supersededthese. In manufacturing, too, national governments continued to resist pan-European competition by subsidising politically sensitive sectors or by imposingnon-tariff barriers. Such practices were less frequently adopted in the case of services,but only because services were less easily traded across national boundaries evenunder conditions of perfect free trade. In short, national markets were not beingintegrated because they were not really being liberalised. The exception to this rulewas financial services, one of which – the sale of long-term corporate and publicsector bonds to relatively wealthy investors – became integrated in a quite novel wayin the course of the 1960s.

The rise of the so-called ‘Eurobond’ market is often seen as an early step in thedirection of financial globalisation (for an introduction, see Kerr, 1984). Earlieraccounts have emphasised the role of the Bank of England in liberalising the Londonmarket for foreign currency transactions at a time when other financial markets werebecoming more, not less, regulated. But the birth of the Eurobond was also a majorbreakthrough in the history of European integration – though one largely unforeseenby the statesmen and technocrats Alan Milward (2000) has called the ‘saints’ of theEuropean Union’s formative years. True, the Treaty of Rome envisaged reducing therestrictions on the free movement of capital between member states ‘to the extentnecessary for the proper functioning of the Common Market’ (Richebacher, 1969,p. 337). But the European Commission did not act as if it attached much importanceto this. Its First Directive on capital controls aimed to liberalise only flows associatedwith trade within the EEC, direct investment or investment in listed shares (Schenk,2002, p. 359). Although the 1962 ‘Action Programme’ aimed to relax capital controlsby the end of 1965, the Second Directive on capital controls was an empty gestureand a Third Directive was stillborn (Schenk, 2002, p. 360; see in general Abdelal,2007). Most national governments remained wedded to capital and exchangecontrols. The development of the Eurobond market was thus an entirelyspontaneous result of innovation by private sector actors, with some help fromBritain’s permissive monetary authorities. Within a few short years, the genesis andgrowth of this market transformed the European capital market, forging entirelynew institutional links and networks across national borders. Nevertheless, itremains a largely unwritten chapter of post-war European history, rating literally nomention at all in one recent textbook on the subject (see e.g. Hitchcock, 2003).

This article seeks to redress the balance by putting the Eurobond market at thecentre of the history of West European integration in the 1960s. The key argumentadvanced here is that it was bankers, not politicians, who made the running in thisperiod. In some measure, no doubt, their motive was narrowly self-interested; theprime motive was profit. Yet there is also compelling evidence that the architects ofthe Eurobond market had a political agenda too. They regarded it not only as a wayof making money, but also as a potent device for advancing Europe’s politicalintegration. In particular, they appreciated that European capital market integrationcould reinforce the case for British membership of the EEC. Among the most

Business History 365

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

powerful arguments against British membership was the legacy of sterling’s historicrole as a reserve currency. The accumulation in London of ‘sterling balances’ byforeign governments and central banks made the ailing British economy vulnerableto periodic crises of confidence, so long as the country continued to run currentaccount deficits. (Britain had international reserves of foreign exchange and gold oflittle more than £1 billion, but the sterling balances rose from just over £3 billion in1958 to £6 billion ten years later (Schenk, 2002, p. 348).) This was analogous to thecontemporaneous American problem with the dollar: the providers of internationalreserve currencies had to run balance of payments deficits in order to supply theworld with their currencies, but in so doing their currencies became vulnerable tocrises of confidence. The French, convinced they were subsidising the Americans,also feared they would end up having to prop up sterling if Britain joined the EEC,since membership was expected to worsen the UK balance of payments; this was akey reason for both de Gaulle’s vetoes of British membership in 1963 and 1967(Schenk, 2002, p. 366). The counterargument developed by the pioneers of theEurobond market was that the French could not exclude Britain indefinitely ifLondon re-established itself as Europe’s financial centre for transactions incurrencies other than sterling (Schenk, 2002, p. 355). Part of the significance ofthe Eurobond market for proponents of British membership was that it turned theCity of London from a liability into an asset.

In this story a leading role was played by the banker Siegmund Warburg. Thoughborn in Germany, Warburg had emigrated to England in 1934 and by the early 1960shad established the bank he founded there with a group of other German-Jewishemigres as the most dynamic and innovative merchant bank in the City of London.Despite having obtained a seat on the prestigious Accepting Houses Committee,S.G. Warburg & Co. was in many ways quite different from the established merchantbanks, even those that had been founded by German-Jewish families in the previouscentury. The bank’s core business was the provision of high-quality financial adviceto British companies, for which it was able to charge substantial fees. This focusreflected the lessons Warburg and his collaborators had learned from the GreatDepression about the risks of conventional banking; it also reflected the changedcircumstances of the post-war world, in which national capital markets remainedsubject to a plethora of exchange and capital controls. Nevertheless, Warburg alwaysyearned for a return to the days of less regulated international finance and spentmuch of his later career trying to devise ways to link his London firm with otherinstitutions in New York, Paris, Hamburg, Frankfurt and Zurich.

At the same time, Warburg was also a convinced proponent of Europeaneconomic and political integration. In the 1920s and 1930s, he and other familymembers had been generous supporters of the Pan-European movement founded byRichard, Count Coudenhove-Kalergi (Orluc, 2003). To Warburg there seemed nonecessary conflict between global – and particularly transatlantic – financialintegration and European political integration. On the contrary, the experience ofthe 1920s seemed to suggest that they were complementary processes. It had beenwhen capital was flowing across the Atlantic at the time of the Dawes Plan that theprospects for Franco-German rapprochement had seemed rosiest. The breakdown ofthe global financial system in the Depression had been followed in short order byEuropean disintegration. A second lesson Warburg learned from the 1930s, however,was that explicit calls for European union were unlikely to succeed because of theresilience of nationalism throughout the continent. By the post-war period,

366 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

therefore, he had become convinced that the only way to advance the cause ofEuropean integration was by economic means – reversing Europeans into a unitedEurope through the back door of commercial and above all financial integration.Given his outlook and ambitions, it is not surprising that it was Warburg who wasthe driving force behind the creation of the Eurobond market. In its technicaldesign – a supranational market that could somehow co-exist with continuednational limitations on capital mobility – and its covert political function, itepitomised his subtle Weltanschauung.

II

Warburg had argued as early as 1947 that a ‘comprehensive programme of West-European reconstruction in which Great Britain would play the leading role wouldobtain [more] wholehearted and generous support in the U.S.A.’ than ‘thearrangement of a large number of Dollar loans to various European countries’, asenvisaged in the Marshall Plan.2 But it soon became clear that dollar loans couldthemselves be used to encourage Europeans to cooperate. The most obvious examplewas the creation of the European Payments Union (EPU) in July 1950, which linkedtogether the international payments systems of the recipients of American aid. In thesucceeding eight years of its operation, the EPU enabled the French and Britisheconomies to run substantial payments deficits with booming West Germany, andcertainly contributed to the rapid growth of intra-European trade. To Warburg,however, this was merely a beginning. His ambition was to see an end to the kind ofexchange and capital controls that persisted in all save the West German economythroughout the 1950s and 1960s. He encouraged the European Coal and SteelCommunity ((ECSC) which he always preferred to call ‘the High Authority’) to enterthe international capital market as a borrower, in the belief that this might enhanceits standing while also increasing its resources, and at the same time enticingAmerican private investors to follow their government’s lead in financing Europeanrecovery.3 In 1957, after long and difficult negotiations, these efforts bore fruit withthe issue in New York of a $35 million bond issue for the ECSC.4 Another somewhatlarger loan followed in 1958; a third for $25 million in 1960 and a fourth for the sameamount in 1962.5 Warburg also sought to encourage Euratom and the EuropeanInvestment Bank to raise funds on the New York bond market. Such transactionsWarburg explicitly characterised as ‘a small contribution’ to the cause of ‘Europeanintegration’.6

It should be stressed that arguments of the sort Warburg put forward were notwidely supported in the City, Westminster or Whitehall. In that sense, despite hisfamily’s long-standing links to established firms like Rothschilds, Warburg wasundoubtedly an ‘outsider’ (Michie, 1988, esp. p. 557; see also Thompson, 1997,pp. 287, 290ff., 295). Indeed, as late as 1979, he could still complain about thegenerally ‘passive if not obstructive attitude of the City towards the EuropeanEconomic Community’.7 But he was not a completely isolated visionary. Others whoshared his approach to the question of European integration included Sir GeorgeBolton, a member of the Court of Governors of the Bank of England, and Sir FrankLee of HM Treasury. A crucial role was played by Hermann Abs of the DeutscheBank, whom Warburg had known since before the war and whose conduct between1933 and 1945 he found it expedient not to scrutinise (see most recently Gall, 2004;Gall understates the importance of the Abs–Warburg relationship). Another kindred

Business History 367

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

spirit in Germany was the German Christian Democrat politician and diplomat KurtBirrenbach (see Hinrichsen, 2002).

At first, it was to the question of exchange rates that this group addressed itself.In theory the major European economies were all linked to the dollar, which was inturn linked to gold, through the system of pegged exchange rates that had beenestablished at Bretton Woods. In practice their divergent economic trajectoriesnecessitated periodic devaluations (of sterling and the French franc) and revalua-tions (of the Deutschmark). As early as 1955, Warburg raised with Bolton ‘thenecessity of getting the European countries more closely linked in currency matters’with a view to achieving ‘complete interchangeability of European currencies’.8 Twoyears later he remained convinced that ‘neither the common market arrangementsnor the so-called free trade area arrangements will work unless there is a jointEuropean stabilisation fund, which for all practical purposes means a joint sterling/D[eutsche] mark stabilisation fund’.9 Abs, Birrenbach and he collaborated on anabortive project for an Anglo-German exchange rate stabilisation fund – whichWarburg at one stage conceived of as ‘an Anglo-German currency alliance’.10 Therewere obvious reasons for such a project. Nothing caused more disruption to Britishpost-war economic policy than the recurrent sterling crises of the period, which weredue as much to the relative uncompetitiveness of British exports as to the large andprecarious sterling balances (Krozewski, 1993). At the same time, German policymakers were increasingly concerned by the opposite tendency of their currency toappreciate as their country ran current account surpluses. However, it provedimpossible to progress beyond the drawing board with such schemes.11 Europeanmonetary authorities preferred national or international solutions over Europeansolutions, for fear of being committed to expensive interventions on behalf of theirneighbours. As Warburg noted in 1960, the principal obstacle to monetaryintegration was the ‘present completely unilateral policy adhered to by the GermanCentral Bank and other authorities’.12 Although the EC’s 1962 ‘Action Programme’had specified monetary union as a long-term objective, nothing more was heard ofthe idea until the Hague Summit of 1969 and the Werner Report of 1970.

Instead, Warburg began to consider the possibility of integrating Europeancapital markets rather than currencies. At first sight, this might seem a contradictorystep. After all, it was precisely the lack of capital market integration in Europe thatallowed the Bretton Woods system of fixed exchange rates to operate alongside moreor less independent national monetary policies. However, we must distinguish herebetween full-scale capital market integration and the more limited form ofintegration Warburg had in mind (see on this point Altman, 1965). As a partnerfor many years in the New York firm of Kuhn, Loeb & Co., Warburg had seen atfirst hand how major American bond issues were conducted by large syndicates ofNew York banks. This had also been a well established practice in the days whenLondon had been a major capital exporting market. The discernible demand ofEuropean institutions and investors for the four ECSC loans issued in New York13

made Warburg and others appreciate the possibility that similar syndicates couldquite easily be created within Europe for dollar-denominated issues of bonds byEuropean entities. Such syndicates could, under the right regulatory conditions,operate across European borders without violating existing rules on exchange andcapital controls, not least because the loans in question were denominated in dollars.This fundamental insight was the basis for the birth and growth of the Eurobondmarket. It was, as Warburg had realised by 1958, hard to imagine a continuation of

368 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

‘the present state of affairs in regard to the distribution of European dollarbonds . . . namely that the American issuing houses underwrite these dollar loans forEuropean borrowers but that the European banks and banking houses place most ofthe bonds.’14 It was equally hard to envisage European capital market integrationproceeding on the basis of some kind of artificial ‘currency of account’, or ‘somekind of multiple currency clause’.15 The inference Warburg drew was that dollar-denominated bonds could be issued in European markets, if an international marketcould be created there that avoided the restrictions of national exchange and capitalcontrols.

The necessary precondition for the Eurobond market was the existence of a largepool of liquid dollar deposits in the hands of multinational companies, Europeancommercial banks and central banks, as well as significant numbers of wealthyindividuals who preferred to hold a portion of their assets in dollars (Schenk, 1998,p. 232). Why were these dollars not simply deposited with American institutions inNew York? The answer is that ‘Restriction Q’, introduced during the Depression,capped the interest rate payable on short term deposits at 1% in the case of 30-daydeposits and 2.5% in the case of 90-day deposits (Schenk, 1998, p. 222). In addition,the Soviet Union and its client states had no desire to deposit their dollar holdings –which were not insignificant – in the United States, where they might be liable toconfiscation in the event of a Cold War crisis (Burk, 1992, p. 76). When Britishinterest rates rose significantly above American rates in mid-1955, the Midland Bankseized the opportunity to offer UK non-residents dollar deposit facilities (Schenk,1998, pp. 224f.). At first this was a mechanism for channelling American depositsinto the British economy, since Midland switched the funds into sterling and lentthem on. But when it became clear that the Bank of England was prepared totolerate this, other banks were not slow to create Eurodollar accounts; by April 1963the London offices of American banks accounted for a third of all UK banks’overseas liabilities (Schenk, 1998, p. 230). By this time, most Eurodollar depositswere being recycled as loans to companies and governments outside the UK. TheEurodollar market in London grew with extraordinary speed, from $1.5 billion in1959 to $50 billion in 1970 (Burk, 1992, p. 66); its annual growth rate peaked in 1969at just under 50% and never fell below 10% throughout the period from 1965 to1979 (Schenk, 2004). Yet this money was by its very nature ‘hot’ money, on short-term deposit; that was what made other central banks so nervous about allowingEurodollar markets to develop. The challenge was to use it as the basis for a newmarket in long-term securities.

III

By the end of the 1950s, Siegmund Warburg was feeling distinctly disillusioned bythe institutions that had been set up to promote European integration: the ECSC,Euratom and the EEC itself, to say nothing of the European Investment Bank, whichhad also been created by the Treaty of Rome and which Warburg viewed with somesuspicion. He feared that the continent was heading towards ‘a time of renewed crisisin intra-European relations’.16 He detected only ‘inertia’ and ‘intrigues’ in Brusselsand Luxembourg.17 These were intimations of the stagnation that was tocharacterise the official integration process throughout the 1960s. To be sure, asPresident of the European Commission between 1958 and 1967, Walter Hallsteinstrove energetically to implement the terms of the Treaty of Rome by enhancing the

Business History 369

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

power of the Commission. But his efforts do not seem to have impressed Warburg.More discouraging was the diversion of the EEC’s energies (and most of itsresources) into what ultimately emerged as the Common Agricultural Policy, asystem designed to protect French and German farmers from anything resemblingthe free play of market forces. With the French pressing for protective tariffs and amarket for their state-subsidised tariffs, and the Germans pressing for artificiallyhigh prices, Europe embarked on the worst kind of economic integration, based onprice supports, stockpiling and protection.

For a time, Warburg held out hope that Britain’s decision to apply to join theEEC in 1961 might revitalise the existing European institutions; this, after all, waswhat he had been advocating for nearly 20 years. However, at a press conference on14 January 1963, de Gaulle brusquely vetoed Britain’s application for membership.It was all too obvious to the French that to admit Britain before a deal had beendone on the Common Agricultural Policy would reinforce the proponents ofrelatively free trade, not least because Britain’s farming sector was so much smallerthan that of any EEC member. At the same time, as we have seen, the French had nodesire to share responsibility for the chronic instability of sterling as a moribundreserve currency (Schenk, 2002). Disgusted, Warburg accused de Gaulle of aiming tocreate ‘a new Europe from Paris to Moscow under Franco-Russian leadership as acounterweight against what he considers Anglo-American preponderance in theAtlantic Community’.18 As he explained in an interview in 1970:

Today the chief characteristic of the European Economic Community is clearly the tariffwall which is erected around it and which, of course, would be still higher if it had notbeen for the Kennedy Round [the sixth session of General Agreement on Tariffs andTrade]. Within the borders of this tariff wall little has been achieved towards thecreation of common European endeavours in the field of helping under-developed areasor towards a European currency. Indeed the European Economic Community has atpresent more of an inward than of an outward-looking image. In these circumstancesBritain has to be very careful about joining a movement which may be rather retrogradethan progressive. Only if we should succeed in becoming members of a EuropeanCommunity in which the emphasis would be less on building up a joint tariff wall and onagricultural subventionism [sic] than on the constructive pooling of the great humanresources of Europe in tackling big tasks both within and beyond Europe would I be infavour of Britain becoming part of the Common Market. Furthermore if in the post-Gaullist period a more generous European spirit could be rekindled, I would return tomy old enthusiasm with regard to Britain’s role in Europe. Indeed, within theframework of a really outward looking Europe, Britain could play a special role as abridge builder between Europe and the wider circle of the Atlantic Community as wellas the underdeveloped countries, following in this way some of the best traditions of herold Commonwealth ties. (Hutber, 1970)

Nevertheless, the stalling of official integration did not rule out the continuationof that financial integration which had first suggested itself to Warburg at the time ofthe second ECSC loan of 1958. The essential building blocks were to be theunderwriting and selling syndicates of banks that were formed on an ad hoc basis fornew dollar-denominated issues. In the 1950s these had been largely composed of thebig Wall Street ‘bulge bracket’ firms. As we have seen, however, the market fordollar-denominated bonds issued by European borrowers turned out to be larger inEurope than in the still domestically-focused US market. This indicated that at leasta portion of Eurodollar deposits in London might be available for investment inlonger-term securities (Mendelson, 1972, p. 113). Increasingly, Warburg and other

370 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

European financiers asked why it was that the American firms did the lucrative workof underwriting, leaving the European institutions to do the more lowly work ofselling bonds to non-financial clients. (In the words of Julius Strauss, of thestockbrokers Strauss Turnbull, ‘The American houses got all the cream but did noneof the work’ (Burk, 1992, p. 67).) This seemed to make less and less sense, the moreEuropean investors dominated the market for such bonds.

The very existence of the Eurodollar market in London reflected thepredisposition on the part of the British monetary authorities to allow the City toact as a centre for offshore finance (Schenk, 1998, p. 228). The Bank’s position wasone of tolerance in the interests of London’s revival: ‘However much we dislike hotmoney we cannot be international bankers and refuse to accept money’ (Schenk,1998, p. 235). This was vital for the development of all the Euromarkets in London,since, other things being equal, they might more easily have developed in Switzerlandor Germany, where supplies of domestic savings for export were more plentiful thanthey were in Britain (Anon., 2002). While other monetary authorities acted to restrictflows of ‘hot’ money,19 however, the Bank was laissez-faire. The paradox was thatLondon was in other respects a more heavily regulated market than Zurich orFrankfurt. Purchases of foreign securities by British subjects were effectivelyprohibited other than with strictly regulated ‘investment dollars’. In 1957 the Bankof England also banned City firms from financing third-party trade in sterling;refinance credits were also banned (Schenk, 1998, pp. 223f.). Though theserestrictions had been lifted by 1960, there remained a 4% (later 2%) stamp dutyon new domestic issues and tax was deducted at source from interest paid to Britishbondholders. At the same time, the London Stock Exchange continued to list thesterling price of dollar securities as if the post-war depreciation of the pound hadnever happened. Exchange controls for UK residents also remained in place until1979. Yet it was precisely this dichotomy between the treatment of residents holdingsterling and the treatment of non-residents holding dollars that made it possible toestablish a completely separate and unregulated dollar bond market in London. Asone market participant later recalled: ‘The Bank could allow traffic in foreigncurrency securities on its capital market and activity in foreign currencies because itwas completely isolated from the management of the domestic monetary mass’(Burk, 1992, p. 80).

That said, the Bank still needed to be handled with care, and it was withsome trepidation that George Bolton broached the subject with the Governor,Lord Cromer, in June 1962. ‘I spoke to you last week’, wrote Bolton warily,‘about a certain exchange of ideas that is currently taking place regarding theopening of the London market to a wide variety of borrowers for loansdenominated in foreign currencies.’ The exchange of ideas had involvedrepresentatives not only of Warburgs, but also of Barings and Samuel Montagu;Hambros became involved the following month. However, no one wished to‘proceed more actively unless the ideas have the general blessing of theauthorities’. The aim, as Bolton explained, was simply to help ‘restore London’sfunction as a capital market’:

[T]he restoration and revival of the London Market machinery to enable issues offoreign loans to be made [is] a matter of immediate importance to the WesternWorld. . . . The only centre that can help New York is London, as we are alluncomfortably aware of the isolation and inefficiency of the European capital markets.(Kynaston, 2001, p. 276)

Business History 371

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

Cromer’s reply was positive: ‘We are sympathetic to this proposal’, he wrote, ‘andwill give it what practical support we can’ (Kynaston, 2001, p. 276). The Bankparticularly liked the fact that it might ‘mop up some of the very volatile Eurodollarsat present in London’ (Schenk, 1998, p. 232). Warburg’s correspondence makes itclear, however, that he and his City associates were also seeking to convey a subtlethreat to the Bank. ‘Unless the Government was prepared to take action in regard tostamp duty and other measures which would make the London issuing marketcompetitive with other foreign capital markets’, they would go elsewhere – perhapsto Luxembourg.20 In fact, the London Stock Exchange was so reluctant to allow thenew dollar bonds to be quoted in London that at first they were indeed quoted inLuxembourg (Coutney & Thompson, 1996, pp. 88f.).21 Amsterdam was alsoinvestigated as a possible market.22 It was through this kind of bargaining thatWarburg and his associates were able to persuade European governments to waivevarious national tax rules that might have been applied to Eurobonds, of which themost important was the withholding tax that was generally deducted from theinterest paid on bonds issued in national stock markets.

There were several possible candidates for the first true Eurobond issue. TheJapanese government expressed an interest in such a loan.23 There was also talk of aloan for the City of Oslo. In his exasperation with the EEC, Warburg evencontemplated a dollar loan for the Commonwealth Development Finance Co. Ltd.24

By April 1963, however, he and his colleagues had reverted to the more logical andfamiliar vehicle of the European Coal and Steel Community. This was how theyexplained their scheme to the Bank of England:

It would be a straightforward dollar loan with no currency options and . . . as far as theU.K. Exchange Control is concerned this would be a foreign currency security for whichU.K. residents would have to pay a premium. Consequently they did not expect anysubscriptions from this country. Nevertheless they would endeavour to get a quotationin London which could be regarded as a basis throughout Europe and thus encouragedealings through London.25

The Bank was attracted to the idea, though there were fears that the Foreign Officemight regard it as ‘inappropriate in any way that a Common Market organisationshould appear to be borrowing in London in the light of the Brussels breakdown’ ofnegotiations about UK membership of the EEC. As the Bank’s John Stevensexplained to Sir Eric Roll, who had been in charge of the negotiations for British EECentry, ‘from the purely financial angle’ such an operation would be ‘welcome’:

As the foreign bond market is not available for loans in sterling to the Continent, anoperation of this type (of which there have been several before) keeps London alive as afinancial centre even if the business is not done in Sterling. I would hope that you feltthat sufficient time had elapsed since the Brussels breakdown. In fact it could be arguedthat there is a positive virtue in showing that at least there has not been a breakdown onthe financial front and that this is an example of the intentions expressed after thebreakdown that every step would be taken between ourselves and the Common Marketto make it easy for the negotiations to be resumed.26

It was a view that was endorsed by the Treasury and Foreign Office.27 However, theneed to secure approval from the Finance Ministers of all six EEC members, andthe hesitancy of Skribanowitz at the ECSC led to months of delays.28 As a result, thefirst Eurobond issue ended up being Italian.

372 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

At the suggestion of the Governor of the Banca d’Italia, Guido Carli, Warburgshad alighted on an Italian steel company, Finsider, a subsidiary of the giant stateholding company the Industrial Reconstruction Institute (IRI). Once again, avoidingnational taxation was crucial, so the bonds were issued not in the name of Finsider,which was legally obliged to deduct Italian taxation from any coupon payments, butin the name of Autostrade, the Italian toll-motorway company, which was able topay coupons gross (Kynaston, 2001, p. 277). The transaction – a $15 million six-yearloan – was managed by a consortium consisting of Deutsche Bank, Banque deBruxelles and Rotterdamsche Bank; underwritten by a syndicate of British andEuropean banks, led by Deutsche Bank; and then marketed to investors through awider network of associated intermediaries led by Strauss Turnbull, White WeldZurich and Credit Suisse Zurich (Gordon, n.d.).29 (It should be noted that despitethe breadth of the network of distribution that swiftly developed, Eurobond issueswere not initial public offerings in the American sense, but widely sold privateplacements (Mendelson, 1972, p. 111).) In the words of Ian Fraser, it represented ‘acompromise between a conventional London ‘‘placing’’ and a conventional NewYork ‘‘offering’’’ (Gordon, n.d.). It was Fraser who did most of the hard toil ofdrawing up the contract and organising the issue, working closely with the lawyersGeoffrey Sammons and Robin Broadley at Allen & Overy (Burk, 1992, p. 68).Available in relatively small denominations (typically $1000), the bonds sold well. Asbearer bonds they were anonymous and portable; they were also free fromwithholding tax. The typical investor was ‘the only half-mythical figure of theBelgian dentist – a high-earning individual, living in a country with a bureaucratictax system where domestic bonds were liable to tax at source, and where there was alimited choice of investment opportunities’ (Burk, 1992, p. 70).

European plans for a dollar-denominated bond market were thus quite welladvanced even before the US government proposed its Interest Equalization Tax(IET) in July 1963, the aim of which was remove the incentives for American citizensand institutions to invest in Europe by imposing a deterrent tax.30 Indeed, if therehad been no IET, the Eurobond market would still have developed because of theimplicit subsidy provided by exemption from withholding tax (Mendelson, 1972,p. 119). There is no question, however, that this measure – and subsequent measuresdesigned to restrict US capital export – gave a stimulus to the growth of theEurobond market. Without the IET, the Austrian government would probably havegone ahead with a dollar loan in New York; instead it raised $18 million inEurobonds issued by Warburgs, Hambros, Rothschilds and the Creditanstalt. Thisloan paved the way for a succession of new issues in the course of 1964. By the end ofthe year, a total of 44 foreign dollar issues had been made in Europe, raising a totalof $681 million (Kynaston, 2001, p. 284). By 1967 more foreign securities were beingissued on the Eurobond market than in the United States and five times more than inEuropean national markets (Richebacher, 1969, p. 344). In 1968 the volume of newissues exceeded $3.5 billion; four years later the total was $5.5 billion (Roberts &Kynaston, 2001, p. 89). Although public borrowers like the Austrian governmentand the cities of Oslo and Turin had initially predominated, from 1966 until 1973 themajority of issues were by private sector entities (Schenk, 2004, p. 211). Gradually,too, a secondary market began to develop, which had been conspicuous by itsabsence at first (when most investors had adopted a ‘buy and hold’ strategy)(Mendelson, 1972, p. 122). Purely transactional problems due to cross-borderdifferences in delivery rules, methods of computing interest and allocation of costs

Business History 373

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

were significantly reduced with the creation of two clearing systems, Euroclear andthe Luxembourg-based Cedel (Mendelson, 1972, p. 124).

IV

Siegmund Warburg was understandably proud of the Eurobond market; he had nodoubt that it was ‘our [meaning Warburgs’] primary initiative’.31 But what were hismotives for pushing its development forward? One obvious hypothesis is that theprofit motive predominated – in other words, that the rise of the Eurobond was astraightforward case of product innovation designed to enhance S.G. Warburg’sbottom line. This was without doubt a factor. As John Craven later recalled,‘Siegmund was clever enough to realize that if you quietly developed a [new] product,namely a Eurobond, which the other [City] houses would probably treat with acertain amount of disdain’, then it was possible legitimately to approach theirestablished clients. ‘It was in fact a very clever ploy to get in the back door’ (Burk,1992, p. 82). Moreover, once the initial Autostrade issue had established a template,Eurobond issuance was comparatively easy. The fixed commissions that bankscharged – conventionally 0.5% for managing banks and underwriters and 1.5% forselling banks and brokers – reflected the fact that it was the lowly sellers who did thehard work. There was effectively no downside risk to the underwriters since issueswere either reduced or pulled outright if demand proved to be slack (Burk, 1992,p. 81). On the other hand, as so often is the case with financial innovation, entrybarriers were low and first-mover advantage was short-lived. At the weekly directors’dinners he held in the mid-1960s, Warburg warned his younger colleagues:

Once a new line of business was invented, all the competing banks wished to have ashare in it and the only result could be that profit margins for the banks went down ordisappeared; this was bound to happen and it would soon happen with our Euro-bondbusiness. (Fraser, 1963, pp. 271f.)

So it proved. As more and more American and Swiss banks entered the market – thenumber of branches of foreign banks in London increased from 51 to 129 between1962 and 1970 – the early dominance of Warburgs, Hambros and Rothschilds waschallenged (Schenk, 2004, p. 209).32 From 1967 until 1972 it was Deutsche Bank thatled the rankings in terms of new Eurobond issuance; quite simply, the merchant bankslacked the capital bases to compete (Roberts & Kynaston, 2001, p. 89). And profitmargins were indeed squeezed, just as Warburg had predicted. Though his bank didbetter than the other merchant banks in terms of the annual issuance rankings, weshould not exaggerate how much money was actually being made from this line ofbusiness. As Warburg himself reminded his executive directors in October 1967:

[H]owever important Euro bond issues are, this must not be our first priority and thatindeed our chief interest should be to look after our important industrial clients in thiscountry, in the United States, and on the Continent of Europe. One fee which we earnfrom giving good service to one of our large industrial clients can be far in excess ofwhat we earn in a whole year in connection with Euro bond issues.33

Craven later confirmed that ‘because SGW had no distribution powers atall . . . . We didn’t make money, we never made serious money for years and years.’In Peter Spira’s words, ‘It was a wonderful prestige business’, rather than anespecially profitable business (Burk, 1992, p. 82).

374 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

A second possible motive – the one most frequently cited in the existingliterature – is that the architects of the Eurobond market shared the Bank ofEngland’s desire to rebuild London’s pre-war position as an international financialcentre. This certainly played a part in Warburg’s calculations. It was his view that inany ‘truly European capital market . . . London could and should play a leading roleirrespective of the present division between EEC and EFTA’.34 This also explainsWarburg’s passionate belief in the need to denominate the second wave ofEurobonds in European rather than American currency. As he explained to hiscolleagues, who complained that dollar bonds were easier to sell:

Anyone who has studied the situation thoroughly and objectively must know that if wecontinue with the issue of foreign bonds expressed in dollars, the entire business will andshould go to New York, and the London market will have no material part in it anylonger. The only chance for the London market to participate in such issues is througharranging loans in other denominations than Dollars.35

The obvious European currency to choose was the Deutschmark, not least becauseGerman long-term interest rates were trending below the European average in thecourse of the 1960s (Richebacher, 1969, p. 343). From Warburg’s point of view,however, a purely Deutschmark Eurobond market had little appeal, for theobvious reason that it would inevitably strengthen the already powerful position ofthe big German banks. In December 1963 he therefore proposed to Abs the idea ofsterling bonds with a Deutschmark option, combining – as Warburg explained toCromer – the strongest EFTA currency with the strongest EEC currency.36 Oncethe approval of the (admittedly uneasy) British and German monetary authoritieshad been secured – which was only after what Warburg called ‘a fight’ – it was thissterling/Deutschmark model that was adopted for the £5 million loan issued in1964 for the city of Turin.37 So excited was Warburg by this transaction that hetook the exceedingly rare step of writing a series of newspaper articles for TheTimes on the subject, in which he was at pains to explain that it posed no threat tothe stability of the British currency or balance of payments. London, he argued,was simply providing a service for foreign holders of Eurodollars and other liquidfunds to buy European bonds. These could be denominated in whatever currencyinvestors found attractive; hence the beauty of multiple currency bonds (SGW, 19March 1964, p. 19; SGW, 20 March 1964). Warburg did not expect such bonds toreplace dollar-denominated Eurobonds in the near future, but he expressed theview privately that ‘if European capital markets are gradually developed . . .European currencies or European currency units will have to be made morepopular than they are at present’.38 Peter Spira, for one, was sceptical of sucharguments. At first baffled by the idea of sterling/Deutschmark Eurobond, heconcluded that the only reason Siegmund had devised it was to ensure that ‘a UKhouse could appear as lead manager’ of what was essentially a Deutschmarksecurity (Burk, 1992, p. 83).

The dual currency bond was only one of a number of ways Warburg worked tosecure London’s position at the centre of the Eurobond market. In 1965, forexample, he joined forces with Rothschilds to lobby the Bank of England to exemptfrom stamp duty foreign bonds issued in London; at the same time, they pressed theTreasury to lift the requirement that income tax be deducted at source from theinterest on bonds issued by UK-domiciled companies.39 Warburg did not merelyshare the Bank’s objective to resurrect London as an international financial centre;

Business History 375

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

he was pushing the Bank to move faster in the direction of liberalising London’sfacilities for international investors.

Yet it would be quite wrong to see either his firm’s profitability or the dominanceof London as Warburg’s prime motivation in devising and developing the Eurobondmarket. For he always conceived of it as, above all, a first step towards linkingtogether the European capital markets and thereby advancing the wider project ofEuropean integration. As he put it in a memorandum he wrote in April 1965:

The main motive force both for the creation of the EEC and EFTA . . . was therecognition that for its optimum scale modern industry required a larger market thancould be supplied by any one European nation. As this policy bears fruit and industrybecomes organised on a truly European scale, there will be an increasing need for a trulyEuropean capital market.40

Contemporaries were not slow to see this possibility. By 1969 it was possible for anacademic economist to conclude: ‘The Euro-bond market has grown to such astature as to foreshadow a real European bond market’ (Richebacher, 1969, p. 346).It was true, as Rene Larre (1969, pp. 325, 327) noted that same year, that theborrowers and investors it brought together came not just from Europe but from ‘allover the world’; yet there was no doubt that the Eurobond market was making ‘asignificant contribution to the modernization of financial and banking practices inEurope’.

Typical of the way Warburg saw the Eurobond market as a vehicle for Europeanintegration was his response to the minor teething troubles the market experienced inthe later 1960s. For a time in 1966, there were so many new Eurobond issues thatWarburg publicly warned of a glut (SGW, 29 March 1966). Yields on some newissues rose above 6% for the first time. To Warburg, this suggested the need for someform of light regulation (meaning self-regulation by the financial markets). But hemade it clear that this would need to be done at the European level, and not just inthe City of London. In 1966 he argued that the Eurobond market should adopt thekind of ‘queuing’ system used in Switzerland to prevent too many new issueshappening at the same time. As Warburg remarked, it was ‘obviously impossible tovisualize the formation of a European capital issues committee which would haveany legally enforceable powers’. But here was another opportunity for furtherunofficial European integration:

If under the sponsorship of say the six or seven leading central banks of Europe, a smallcommittee of representatives of these banks were established, it should be possible toarrange for the issuing houses concerned to register with such a committee the issuesthey are planning, and to be guided by the committee in regard to the timing and themaximum size of these issues. (SGW, 29 March 1966)

He returned to this theme in 1970, when the market threatened to be overwhelmedby an ‘avalanche’ of borrowing demands.41 Now Warburg argued that ‘a Committeebe set up consisting of representatives of one issuing house in each of the followingcountries: Belgium, France, Germany, Holland, Italy, Switzerland, and the UnitedKingdom’.42

The same kind of thinking underlay Warburg’s response to the challenge posedby the ‘invasion’ of Wall Street firms, which was to propose the formation of largerEuropean syndicates. In many ways, this was the most important kind of Europeanintegration the Eurobond market encouraged. To begin with, many of the key

376 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

decisions were taken as a result of regular consultation with Abs and a few others. AsWarburg later recalled, he and Abs ‘were continually in touch regarding the terms ofthe Euro issues on which we were working and were also checking with one anotherthe attitudes of our . . . firms towards the Euro transactions done by our competitorson both sides of the Atlantic’.43 In 1967, an informal agreement was reached tocreate a more or less permanent alliance between four of the biggest banks involved:Warburgs, Deutsche Bank, Banque de Paris et des Pays-Bas (Paribas) and BancaCommerciale Italiana.44 This British–German–French–Italian combination was animposing one. It was also quite typical of the kind of European financial structureWarburg aspired to build, foreshadowing his subsequent attempt to bring about afull-scale merger between Warburgs and Paribas. A similar initiative was the‘Transatlantic Bond Fund’ which linked together Warburgs, the Bank of Londonand South America, Banca Nazionale del Lavoro and Stockholms Enskilda Bank.45

By 1970 the group with which Warburg liked to work had expanded to include theDutch bank Amro, the German banks Commerzbank and Dresdner and the FrenchSociete Generale.46 British entry into the Common Market did not radically alterthis pattern, contrary to the expectations of those who expected major structuralchanges in the banking world after 1972.47 As Warburg put it,

with this new European background . . . major financial houses on the continent andhere in this country [would] become linked together . . . [b]ut linked in such a way thatthey do not lose their autonomous management, their autonomous style, theirautonomous plans, their autonomous structure, including their separate closeconnections to many parts of the world.48

The next stage of financial evolution was the emergence of consortium banks, whichflourished in this period (Schenk, 2004, p. 212).

Warburg was therefore perfectly sincere in conceiving of the Eurobond market asa stage in the process of European integration. This, rather than its inherentprofitability or its advantages to the City of London, was his principal reason forpursuing it.

V

There were, nevertheless, practical limits as to how European the Eurobondmarket could actually be. It is important to emphasise that the public and privatesector entities that raised money on the new Eurobond market were not allEuropean (nor, for that matter, were the European ones all based in the EEC).Between 1965 and 1970, 37% of Eurobond issues were for American companies;and 68% were dollar-denominated (Mendelson, 1972, Table 1). Among the majorissues handled by Warburgs in 1967 was one for Chrysler, the American carmanufacturer. Mobil Oil was another client that year. Nor was it realistic to expectto exclude the big American banks from this burgeoning new market. Althoughcooperation between European banks certainly increased as a result of Eurobondmanagement and underwriting syndicates, American banks also featured promi-nently in the lists – so-called ‘tombstones’ – of syndicate members that werepublished in the financial press on the occasion of each new issue. Moreover, it wasoften the Americans who pushed forward the innovation frontier. By 1969 a largesyndicated loan market had emerged for short-term loans which, along with thecertificates of deposit introduced in 1966, filled the middle ground in the term

Business History 377

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

structure of Euro interest rates between the Eurodollar and the Eurobond market(Kynaston, 2001, p. 338; see also Roberts, 2001). The idea of floating rate issues,though pioneered by Warburgs from 1970, was originally the brainchild of EvanGalbraith of Bankers Trust International (Kynaston, 2001, p. 339). Significantly,the $425 million loan organised on this basis for the Italian Electricity AuthorityEnte Nazionale per l’Energia eLettrica, (ENEL, and hailed in the press as ‘thelargest finance transaction done by a private group in Europe’) was managed by asyndicate that comprised not only Warburgs, Banca Commerciale Italiana andCredit Suisse but also Bankers Trust and White Weld.

A second difficulty was that with the advent of floating exchange rates, theattractiveness of the Eurobond market was bound to diminish for corporations inweak-currency countries like Britain and Italy, which were unlikely to want toborrow in Deutschmarks, Swiss francs or even dollars, even if loans in thosecurrencies could be had at lower interest rates than were available on their domesticmarkets. Why would British Leyland want to saddle itself with Deutschmark-denominated debt if the pound was going to continue sliding inexorably downwardsagainst the German currency?49 The case of the Italian company Finsider – which, aswe have seen, had been behind the first Eurobond issue – is especially telling. By 1970the company had accumulated Eurobond debts totalling $410 million and was nowdesperately trying to repay them or convert them into lira because its managementfelt ‘extremely gloomy over the future of the Italian economy and hence the strengthof its currency’.50 It was with this kind of problem in mind that Warburg discernedmore and more the advantages of some kind of European monetary integration,beginning with the creation of a unit of account – ‘Euro moneta’ – based on a basketof different national currencies (possibly composed of the six EEC currencies plus orminus the Swiss franc). A loan on this basis was briefly contemplated for the ECSCin 1968. As Warburg observed, such a transaction would not be one in which aBritish bank could play a leading role:

It will obviously be impossible for a British house to obtain a leading position in a HighAuthority issue based only on EEC currencies, and it will probably be impossible bothfrom a political and currency angle to associate the Sterling currency with such anarrangement. However, if we make a worthwhile intellectual contribution to the presentdeliberations going on in the Finance Section of the European Commission (no longerthe High Authority), such a contribution might not only be valuable for the sake ofthe good cause but might also justify our group in taking a part in a financialtransaction which may ensue in due course.51

In practice, however, most issuers (including the ECSC) were put off by thecomplexities of such devices. Most Eurobond issues in the late 1960s and early 1970swere denominated in either dollars, Deutschmarks (as the German governmentsought to encourage capital export) or Dutch guilders.52

Nevertheless, despite these limitations, it does not seem unreasonable to agreewith Warburg that the creation and growth of the Eurobond market was asignificant step in the process of European integration. By firmly establishingLondon as Europe’s dominant financial centre, it undoubtedly helped to pave theway for British entry into the EEC. By revealing the costs of multiple floatingcurrencies, it strengthened the case for some kind of European monetarycoordination, pointing the way ahead to the European Monetary System, theExchange Rate Mechanism and ultimately Economic and Monetary Union.

378 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

Warburg never imagined that the goal of a single currency could be achieved in theway that the Eurobond market had been created, namely by private sector initiative.As he wrote in October 1972, ‘an economic and monetary union cannot be envisagedwithout a political union. I think it was Bismarck who always talked about ‘‘dasprimat der politik ueber die wirtschaft’’ [sic] and this is as true today as it was in hisage’.53 Throughout Warburg’s life, however, he saw economic integration as a viablesubstitute when political union appeared to be log-jammed. That had seemed to bethe case in the 1960s; the result was the Eurobond market.

By the year 2000, according to one estimate, Eurobonds comprised around90% of international bond issues (Roberts & Kynaston, 2001, p. 114). TheEurobond market by this time had grown to be ‘one of the world’s biggest andfreest sources of long-term public funds’ (Claes, De Ceuster, & Polfliet, 2002, p.373).54 The fact that around 70% of all Eurobond issuance and secondary tradingis in London is no accident of history (Clementi, 2001), but the result of aconscious effort by Siegmund Warburg and his associates in the 1960s (Roberts &Kynaston, 2001, p. 72). Though doubtless partly motivated by a desire to enhancetheir companies’ profit and loss accounts and to re-establish the City as aninternational financial centre, the architects of the Eurobond market understoodquite well that they were simultaneously advancing, by financial means, the processof European integration.

Acknowledgements

This paper is based on chapter 9 of my forthcoming biography of Sir Siegmund Warburg. Iwould like to thank Glen O’Hara and Andrew Vereker for research assistance. A full list ofother acknowledgments will be published in the book.

Notes

1. Siegmund G. Warburg papers [henceforth SGW] SGW, DME/AA../CNZZ/5/, FritzOppenheimer to SGW, 24 May 1966.

2. SGW, Box 62, Report 12, 14 June 1947.3. SGW, Box 64, SGW, Daily Report, 3 March 1956. There are numerous letters in

Warburg’s papers on the subject of the ECSC’s finances. Of particular importance in thisregard was his friendship with Hans Skribanowitz, the Director of the ECSC’s FinanceDivision.

4. Yale University Library, William Wiseman Papers, Box 19 f.137, SGW to WilliamWiseman, 15 April 1957.

5. SGW, Box 1, SGW to Edmund Stinnes, 24 May 1958; Box 64, SGW, Daily Report, 2June 1958; SGW, DME/AA../CNZZ/5, SGW to William Wiseman, 10 June 1958; Box 8,SGW to Valery Giscard d’Estaing, 5 November 1962.

6. SGW, Box 1, SGW to Hans Skribanowitz, 3 July 1958.7. SGW, Box 41, SGW to H.R. Hutton, 11 June 1979.8. SGW, Box 64, SGW, Daily Report, 23 April 1955.9. SGW, Box 64, SGW Daily Report, 2 September 1957.10. SGW, DME/AA../CNZZ/5, SGW to Kurt Birrenbach, 4 December 1957. See also SGW,

Box 63, SGW Daily Report, 7 September 1957.11. For Warburg’s discussion of the idea with John Stevens, a Bank of England director, see

SGW Box 64, 15 September 1958.12. SGW, DME/AA../CNZZ/ 5, SGW to Coudenhove-Kalergi, 15 September 1960.13. American investors accounted for, respectively, 38%, 38%, 37% and 57% of the four

loans; in other words, a majority of the dollar denominated bonds ended up in Europeanhands: SGW, Box 8, SGW to Valery Giscard d’Estaing, 5 November 1962.

14. SGW Box 1, SGW to John Schiff, 30 October 1958.

Business History 379

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

15. SGW, Box 2, I.J. Fraser, ‘SGW and I.J. Fraser’s Visit to Brussels’, 17 April 1959; SGW,Box 3, SGW, Daily Report, 16 February 1960.

16. SGW Box 2, SGW to Edmund Stinnes, 23 April 1959.17. SGW, Box 2, SGW to Max Kohnstamm, 23 April 1959; SGW to Rene Sergent, 21 May

1959.18. SGW, Box 9, SGW to Lord Avon, 1 February 1963.19. The Swiss, French and German authorities all introduced regulations to limit the influx

of hot money and currency instability prompted West Germany to reintroduce capitalcontrols in 1961 (Schenk, 1998, p. 234).

20. SGW Box 8, SGW to Grunfeld, Korner, Whitman, Grierson, Sharp, Stheeman, 2 August1962. See also SGW circular to Grunfeld, Korner, Grierson, Whitman, Sharp, Stheeman:Draft, ‘European issues of multiple currency loans’, to be sent to Bolton for Bank ofEngland scrutiny, 8 August 1962.

21. In the words of one participant, the Stock Exchange truly ‘missed the boat’ (Burk, 1992,p. 78).

22. SGW, Box 9, Stheeman to SGW, Korner, Grierson, Whitman, Sharp, 1 April 1963.23. SGW, Box 9, Gurney to Grierson, Whitman, Sharp, 13 May 1963.24. SGW, Box 9, SGW note to Korner, Whitman, members of steering group, 13 February

1963; SGW note to Korner and Whitman, 16 February 1963.25. Bank of England OV47/6 64, CRPH Note for Record for Mr. Stevens, 25 April 1963.

Warburgs later qualified this assurance. ‘It is expected’, the Bank was informed, ‘that nomore than a nominal amount will be purchased in the U.K. . . . [T]here will be nocirculation offering the Bonds but that a few ‘‘friends’’ in the U.K. will subscribe with‘‘switch’’ dollars, and it is for this reason they are been quoted in London and aprospectus issued to meet Stock Exchange requirements’: PRO T 295/885, R.G. Gillingsto Mr. Blacker, 18 June 1963.

26. Bank of England OV47/6 66, J.M. Stevens to Sir Eric Roll, 26 April 1963.27. PRO T 295/885, J.G. Owen to Sir Eric Roll, 26 April 1963; Bank of England OV47/6 67,

D.P. Reilly, FO, to Sir Eric Roll, Treasury, 30 April 1963; PRO T 295/885, G.B. Blakerto Mr. Radice, 8 May 1963; Bank of England OV47/6 68, G.B. Blaker to J.M. Stevens, 9May 1963.

28. Bank of England OV47/6 69, J.M. Stevens Note for Record, 21 May 1963. Skribanowitzpreferred to stick to the tried-and-tested method of issuing dollar bonds in New York.

29. Banque Internationale a Luxembourg handled the Luxembourg listing, which the Bankof England had insisted on so that UK investors could buy the bonds with so-called‘investment dollars’.

30. The measure essentially imposed a 15% tax on US investment in long-dated foreignissues (on its effects, see Cooper, 1999). The US government’s intentions in this regardhad, admittedly, been signalled in a speech by Secretary of the Treasury Douglas Dillonin May 1962. But the tax was not actually enacted until September 1964. Some Americanobservers erroneously interpreted the Eurobond market as a result of the IET (Scott,1969, p. 350; see also Griffith, 1969, pp. 538f.).

31. SGW, Box 12, SGW note to members of the 9.15 meeting, 9 July 1964.32. For 1966, the top seven banks in the Eurobond market (ranked by issues initiated and

managed) were: White Weld ($141 million), Deutsche Bank ($106 million), Kuhn Loeb($94 million), S.G. Warburg ($92 million), First Boston and Morgan Stanley ($85 millioneach), and N.M. Rothschild ($72 million) (Kynaston, 2001, p. 326).

33. SGW, Box 20, SGW to all Executive Directors, 31 October 1967.34. SGW, Box 13, SGW note, ‘London as an international capital market’, 13 April 1965.35. SGW, Box 12, SGW note to members of 9.15 meeting, 5 October 1964.36. SGW, Box 10, SGW note, ‘Bank of England’, 31 December 1963. See also SGW, Box 11,

SGW note to Whitman, Grierson, Fraser, Kelly, Stheeman, Spira, Jessel, 21 January1963; SGW to Whitman, Korner, Grierson, Fraser, Kelly, Stheeman, Cripps, Jessel, 27January 1963.

37. SGW, Box 11, SGW note, ‘Sterling/Mark loans’, 27 February 1964; SGW draftmemorandum on sterling loans to the Italian Government, 13 March 1964; SGW note,‘Bank of England’, 18 March 1964; Fraser note to SGW, Gunfeld, Korner, Grierson,Whitman, Kelly, Spira, Jessel, 7 April 1964; SGW to Fraser and Spira, 28 April 1964.

380 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

38. SGW, Box 11, SGW to Samuels, 10 April 1964.39. SGW, Box 13, Fraser and Kelly note to the Bond Team, 4 February 1965. See also SGW

to Sir Eric Roll, 22 February 1965.40. SGW, Box 13, SGW note, ‘London as an international capital market’, 13 April 1965.41. SGW, Box 26, SGW to Korner, Craven, Lewisohn, Wuttke, Adams, Constance, Policy

committee, 17 June 1970; SGW to Korner, Craven, Members, policy committee, 29 June1970.

42. SGW, Box 26, SGW & Co. draft memorandum, ‘Establishment of machinery for thecoordination of euro-issues’, 3 August 1970; SGW & Co., draft memorandum, 21 August1970.

43. SGW, Box 43, SGW to Roll, Scholey, Members, Monday meeting, Directors,International Department, 26 August 1981.

44. SGW, Box 19, SGW to Whitman, text of announcement which may be made, 16 June1967.

45. SGW, Box 16, SGW note, ‘Transatlantic bond fund’, 25 May 1966.46. SGW, Box 25, Martin Gordon to SGW, Kelly, Korner, Boas, Mortimer, Saher, Policy

committee, international department, NY office, 29 April 1970.47. SGW, Box 29, Roll to SGW, Grunfeld, GC Seligman, Scholey, Spira, 6 January 1972.48. ‘Sir Siegmund Warburg, Interview’, Investors Chronicle, 13 April 1973.49. For discussions of other ways to insure British borrowers against the exchange rate risk,

see SGW Box 22, SGW, enclosure to Grierson, Fraser paper, ‘Exchange guarantees forUK borrowers’, 11 October 1968. As Warburg noted, offering some kind of insuranceagainst sterling depreciation in return for a percentage commission would simply makethe effective interest rate of any loan too high.

50. SGW, Box 28, Salina to SGW, Roll, Korner, Craven, McAndrew, di Robilant, Spira, 28September 1971.

51. SGW, Box 21, Kelly to SGW, Korner, Whitman, Fraser, Bonham Carter, Roll, 8January 1968; SGW, Box 21, SGW to Whitman, Roll, Kelly, Bonham Carter, Daus,Burkhardt, van der Beugel, 27 April 1968.

52. SGW, Box 26, SGW & Co. draft memorandum, 21 August 1970.53. SGW, Box 30, SGW to Lord Gladwyn, 20 October 1972.54. It is worth noting that since 1980 European countries have accounted for around a third

of all issuance. Around 40% of the face value of Eurobonds issued in that period weredollar denominated. It seems likely, however, that euro-denominated issues will soonovertake dollar-denominated issues.

Notes on contributor

Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and WilliamZiegler Professor of Business Administration at Harvard Business School. He is the author ofeight books, including The world’s banker: A history of the house of Rothschild, which won theWadsworth Prize for Business History in 1999.

References

Abdelal, R. (2007). Capital rules: The construction of global finance. Cambridge, MA andLondon: Harvard University Press.

Altman, O.L. (1965). The integration of European capital markets. Journal of Finance, 20(2),Papers and Proceedings of the Twenty-Third Annual Meeting of the American FinanceAssociation, Chicago, Illinois, December 28–30, 1964, pp. 209–221.

Anon. (2002). To what extent did the city determine that no restrictions were placed on theLondon Eurodollar market in the period 1960–3? Unpublished final honours school thesis,Oxford University.

Burk, K. (1992). Witness seminar on the origins of early development of the Eurobondmarket. Contemporary European History, 1(1), 65–88.

Claes, A., De Ceuster, M.J.K., & Polfliet, R. (2002). Anatomy of the Eurobond market, 1980–2000. European Financial Management, 8(3), 373–386.

Business History 381

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14

Clementi, D. (2001). The city and the euro: Innovation and excellence. Speech at the CitySeminar on ‘London in the 21st century’, Palace Hotel, Tokyo, February 13.

Cooper, R.N. (1999). Should capital controls be banished? Brookings Papers on EconomicActivity, 1, 89–141.

Coutney, C., & Thompson, P. (1996). City lives: The changing voices of British finance. London:Methuen Publishing Ltd.

Fraser, W.L. (1963). All to the good. London: Heinemann.Gall, L. (2004). Der Bankier: Hermann Josef Abs – Eine Biographie. Munich: C.H. Beck.Gordon, M. (n.d.). ‘Autostrade and the dawn of the Eurobond’. Unpublished manuscript.Griffith, J.R. Jr. (1969). The effect of the interest equalization tax act and the interest

equalization tax extension act on purchases of long-term bonds of selected countriesmarketed in the United States: 1959 to March 1966. Journal of Finance, 24(3), 538–539.

Hinrichsen, H.-P. (2002). Der Ratgeber: Kurt Birrenbach und die Aussenpolitik derBundesrepublik Deutschland. Berlin: Verlag fur Wissenschaft und Forschung.

Hitchcock, W.I. (2003). The struggle for Europe: A history of Europe since 1945. London:Profile.

Hutber, P. (1970, January 21). Sir Siegmund Warburg speaks. Sunday Telegraph.Kerr, I.M. (1984). A history of the Eurobond market. London: Euromoney Publications.Krozewski, G. (1993). Sterling, the ‘minor’ territories, and the end of formal empire, 1939–

1958. Economic History Review, New Series, 46(2), 239–265.Kynaston, D. (2001). The City of London, vol. IV: A club no more 1945–2000. London: Chatto

& Windus.Larre, R. (1969). Facts of life about the integration of national capital markets. Journal of

Money, Credit and Banking, 1(3), 319–327.Mendelson, M. (1972). The Eurobond and capital market integration. Journal of Finance,

27(1), 110–126.Michie, R.C. (1988). Insiders, outsiders and the dynamics of change in the City of London

since 1900. Journal of Contemporary History, 33(4), 547–571.Milward, A.S. (2000). The European rescue of the nation-state (2nd ed.). London: Routledge.Orluc, K. (2003). A Wilhelmine legacy? Coudenhove-Kalergi’s ‘Paneuropa’ as an alternative

path towards a European (post-)modernity, 1922–1932. In G. Eley & J. Retallack (Eds.),Wilhelminism and its legacies: German modernities, imperialism, and the meanings ofreform, 1890–1930 (pp. 219–234). Oxford and New York: Berghahn.

Richebacher, K. (1969). The problems and prospects of integrating European capital markets.Journal of Money, Credit and Banking, 1(3), 336–346.

Roberts, R. (2001). Take your partners: Orion, the consortium banks and the transformation ofthe Euromarkets. London: Macmillan.

Roberts, R., & Kynaston, D. (2001). City state: A contemporary history of the City of Londonand how money triumphed. London: Profile.

Schenk, C. (1998). The origins of the Eurodollar market in London, 1955–1963. Explorationsin Economic History, 35(April), 221–238.

Schenk, C. (2002). Sterling, international monetary reform and Britain’s applications to jointhe European Economic Community in the 1960s. Contemporary European History, 11(3),345–369.

Schenk, C. (2004). Crisis and opportunity; The policy environment of international banking inthe City of London, 1958–1980. In Y. Cassis & E. Bussiere (Eds.), London and Paris asinternational financial centres (pp. 207–228). Oxford: Oxford University Press.

Scott, I.O. Jr. (1969). The problems and prospects of integrating European capital markets:Comment. Journal of Money, Credit and Banking, 1(3), 350–353.

SGW. (1964, March 20). London as a market for foreign bonds. The Times.SGW. (1964, March 19). Double currency clause. The Times.SGW. (1966, March 29). Indigestion on European capital market, B.I.S. to control queue? The

Times.Thompson, P. (1997). The Pyrrhic victory of gentlemanly capitalism: The financial elite of the

City of London, 1945–90. Journal of Contemporary History, 32(3), 283–304.

382 N. Ferguson

Dow

nloa

ded

by [

Ast

on U

nive

rsity

] at

05:

57 2

7 Ja

nuar

y 20

14