By Guy Faulconbridge
LONDON (Reuters) - A British exit from the European Union could prompt an exodus of leading foreign banks and undermine London's dominance of the foreign exchange markets, the head of the City of London financial district said in an interview on Tuesday.
Prime Minister David Cameron has promised to renegotiate the terms of Britain's EU membership and hold an "in-out" referendum if re-elected in 2015, prompting fears that the world's sixth largest economy could drop out of the club it joined in 1973.
The Lord Mayor of London, whose predecessors have spoken for the merchants of the City of London since 1189, told Reuters a possible British exit was a significant threat to London that would go against 2,000 years of trading history.
"There is a risk that those foreign exchange desks would move, and that might apply as much to JP Morgan or Citigroup as it does to Deutsche, and equally for all the expertise that is there for project finance, structured finance, commodity dealing and the legal side which is so strong here," said Roger Gifford.
"If the UK was not in the European Union and there was some rift with Germany I cannot see why the German authorities would not be suggesting to the management of Deutsche Bank that they should have their primary operations particularly for foreign exchange back in Germany rather than London," he added.
London trades more than a third of the $5-trillion a day global foreign exchange market and is by far the most important financial center in the European Union, vying with New York for the title of the world's financial capital.
While the popular press has cast bankers as the villains behind the financial crisis, the sector make up about a tenth of Britain's gross domestic product.
Concern over a possible British exit, or 'Brexit', has prompted some bankers to go public. A senior Goldman Sachs executive warned this week that European banks would leave if Britain slipped out of the EU.
JERSEY WITH NUKES?
Polls show a slim majority of British voters want to leave the EU, Britain's biggest trading partner, though allies and investors have said any exit would torpedo Britain's influence and starve its $2.5 trillion economy of investment.
Opponents say European integration has been imposed by out-of-touch bureaucrats whose social policies mean it will fall further behind the rest of the world. Britain, they say, should look to emerging markets and the rest of the world, not Europe.
Gifford, who heads up the British operations of Swedish bank Skandinaviska Enskilda Banken, said it was mistaken to believe Britain could operate alone outside the single market.
"There is a different reality today - let's not be silly," he said, adding that at least 90 percent of the major financial institutions in London wanted Britain to stay inside the EU.
"If New York state was cut off from the other states of America by trade or capital movement barriers and Washington had no barriers, no one would be in New York - they would all have buzzed down to Washington in 10 seconds flat."
Voters would probably not vote to leave the EU, he said.
But if they did, could Britain or London go it alone as an off-shore zone such as the Overseas Territory of Bermuda or the Crown dependency of Jersey?
"Jersey with nukes? I just don't think that is a logical commercial way to go," he said.
(Editing by Ralph Boulton)