Goldman Sachs threatens to quit the City if Britain leaves the European Union

Goldman Sachs has warned that it would move its European operations to Paris or Frankfurt if Britain leaves the European Union (GETTY IMAGES)

Goldman Sachs has warned that it would move its European operations to Paris or Frankfurt if Britain leaves the European Union.

"In all likelihood we would transfer a substantial part of our European business from London to a euro zone location – the most obvious contenders being Paris and Frankfurt," said Goldman Sachs International co-chief executive Michael Sherwood.

The Wall Street giant currently employs a 7000-strong staff in Europe, of which approximately 85 per cent are based in the City.

The comments come as the debate over the UK's place in Europe intensifies, with Prime Minister David Cameron pledging to hold a referendum on Britain's membership of the EU.

Goldman's remark challenges the idea that the City would be better off without Brussels and its burdensome regulation, including a new controversial cap on bonuses across the euro zone.

Under the new set of laws, bonuses will be capped at 100 per cent of annual salary, or twice the amount if explicitly approved by shareholders.

In response, the UK has filed a lawsuit against the European Parliament and its member states, arguing that reducing compensation won't make the banking sector safer and could see the City of London losing its competitive edge over its Wall Street rivals as a global financial centre.