PLACE FINANCIÈRE & MARCHÉS — Marchés financiers


Pierre Gramegna premier invité du podcast «Shaping Finance»

Tous les quinze jours, Nicolas Mackel, CEO de Luxembourg for Finance, invite des leaders de haut niveau du secteur européen et mondial des services financiers à partager leurs points de vue dans le podcast «Shaping Finance». Le premier invité est Pierre Gramegna, le ministre luxembourgeois des Finances.


Welcome to the podcast that shares the views of high-level leaders in the European and global financial services industry.

Nicolas Mackel . – «Welcome to Shaping Finance, a podcast which offers a platform to high level decision makers and shapers in international finance. My name is Nicolas Mackel. I’m the CEO of Luxembourg for Finance and the host of this podcast. For this very first episode of our new podcast series, I am delighted to welcome our guest, Pierre Gramegna (DP), the Minister of Finance of Luxembourg. Minister Gramegna has held this office for six and a half years, in fact, since December 2013. Before that, he has led the Luxembourg Chamber of Commerce for 10 years. And before that, he has led a very distinguished career as a Luxembourg diplomat, which also brought him to an ambassador’s post in Japan and in Korea. Minister Gramegna is thus, excellently placed to discuss with us the themes that we will put to him, such as the crisis we’re currently seeing, the reaction of the Europgroup, what it means for the global, the European and the national economy going forward, what it means for the future of globalization and where he sees the priority for the future.

But here we go, Minister Gramegna.

Minister Gramegna, the Eurogroup has been very active and very forceful in its response to this crisis. It has created a number of mechanisms, including the €750 billion recovery fund. Nevertheless, the picture that emerged was one of divisions. What would you recommend? What would you think that the Eurogroup would need to do in order to address further the crisis, and second, also the divisions that have emerged over the coming, not only weeks but months, because this obviously is a crisis that will be with us for quite some time?

Pierre Gramegna . – “This is a very important question for the coming months. When you look at the crisis, the economic crisis that has been the consequence of the sanitary crisis, in the beginning, it looked like Europe would not meet the challenges and particularly, the Eurogroup wouldn’t come up with the right answers. So those who were pessimistic were proved wrong because on April 9, the Eurogroup decided the three major measures for the short term, which in the meantime have been enacted, these three measures are worth €540 billion euro, which is a very huge number and these measures have to do with short labour schemes, its called SURE. They have to do with guaranteeing loans of companies, which will be done by the European Investment Bank, and last but not least, very important strengthening the role of the European Stability Mechanism.

On top of it, the Eurogroup decided on the principle of the recovery fund of which we have then discussed a lot and €750 billion euros where there discussed and have to be implemented. Now, the new president, Paschal Donohoe, who will succeed the Portuguese finance minister, Mário Centeno, will not have an easy task despite the fact that we have made major decisions to increase solidarity inside Europe. So, I trust him to have the good hand and the right inspiration to bridge the gap between North and South and East and West. There are many ways in which you can do that; listening, obviously to all the countries and also, using the inclusive format of the Eurogroup, which means listening also very carefully to those countries that have not yet adopted the Eurogroup.

We now know that Bulgaria and Croatia are now in a phase to getting closer to the Europgroup. So, working in an inclusive format, I think is a very important. And last, and certainly not least, we must not forget that the European Union has decided in March, to use the escape clause, which is foreseen in the treaties. This escape clause allows us, for 2020, to put the Stability and Growth Pact in parenthesis. This parenthesis is open-end for the time being. We don’t know when this will be lifted, this second part. So, will that happen progressively? What I want to say with this is that we will not be able to avoid a discussion of how we will re-enact the Stability and Growth Pack. It would probably happen step by step, and that will be a very difficult discussion in the months to come.

Minister Gramegna, the sanitary crisis is still raging in many countries. Numbers are spiking. Numbers of infections are spiking, but we are not really looking at the medium to long-term. I think that the picture that we need everybody to really get a good sense of is where are our economies going, not over the couple of weeks between now and autumn, but really in the medium to long– term? What is your take on this?

PG: “Yes, the economic crisis that is hitting all areas of the world is a severe one. Now, it is useless to point out if it is a tougher and deeper recession than back into twenties, or different or more important than the one that we lived through in 2008. What is important is to just look at facts and build on confidence. Let me first focus on facts. The recession in European Union or in the Euro area will be between -8% to -9% in 2020, and the Commission calculates and others too, that we have a pickup of the economy in 2021 of roughly 5%, 6%, or 7%. Now, one must look at this very bluntly. What does that mean? That means that in two years we will have no growth because it’s useless to be overoptimistic about the rebound of next year without taking into account the very deep negative rate of 2020.

The other way around, it’s useless to be over pessimistic because as it is an exogenous crisis that we’ve lived through because it all came through the virus, which nobody had on the radar, so very often in such cases, the pickup of the economy is faster. This being said, the second thing that we need to take into consideration, which makes me more optimistic is that the financial sector is doing much better right now than it did 10 years ago. Now, in fact, 10 years ago, the financial sector, financial services were the main problem and triggered an economic crisis. Now, this time we have, especially in European Union thanks to the Banking Union and the decisions that the EU has taken over the years, a much more stable financial sector on the one side, less nonperforming loans on the other side.

And so basically, what we need to realize is that banks are part of the solution. We need more loans for the economy. We need a qualitative jump of the economy and this needs to be financed. That’s where the financial sector comes in, and Luxembourg is very well placed in that area, obviously because we have an international financial centre. We have seen that the players in Luxembourg, the banks mainly, have done and taken up their responsibility by ensuring that in the very short term, in the moratoria, they could do live up to the expectations and the government has on its own, taken some decisions so that loans would be guaranteed to help come out of the recession. So, in a nutshell, I would say: no need to be over pessimistic and no need to under evaluate the risks that we see ahead.

Even before the COVID crisis hit the world economy, there were trade wars on the horizon, which obviously, impacted the flow of globalization, but the COVID crisis has certainly emerged as one factor that will leave a very, very deep impact on it. How do you see globalisation, whether for trade or for finances going forward?

PG: “Yes, this crisis that has emerged after the virus is a very specific one as we have not known one in the past. So, some sectors suffer more than others. I think of tourism, I think of restaurants, event organisers, aviation, and I could mention a few others. I could mention the car industry, for example. That’s one thing to keep in mind. The second thing is that every time you have recessions, you have risks of trade barriers growing higher of temptation of looking inwards. Now, as you rightly mentioned, there were already trade tensions prior to the COVID crisis. So, these tensions have obviously increased even more. Now, what must be avoided is to just mix up all ideas and put globalisation as such into question. Globalization has allowed us to reduce poverty in the last couple of decades in a way that has never happened in the past.

It has raised the standard of living of quite a few countries and people, but, and that’s my second point: this crisis has highlighted that maybe we should ask more questions how the growth should look like in the future. So, it’s a quality discussion that adds up to the quantity. So, it’s not enough when we focus on 2021, how much we will grow, but how we will grow. And here, I think the priorities of the European Union, which is the New Green Deal and digitalisation are really a core of the answers that we need here. In Luxembourg we will definitely point to these developments to organise its growth. Now, luckily on top of that, we have a large financial centre and also here, the two elements of digitalisation on the one hand and what I would call sustainable finance will play a bigger role.

I have insisted a lot over the last couple of years that those are the two priorities that we should foster; on the one hand, make sure that we are a champion in FinTechs and we’ve been good at that and also, in the context of Brexit have been able to attract quite a few companies. We can be considered the hub of e-payments in Europe. We have to continue in that direction on one hand and second, sustainable finance. We’ve also pioneered lots of areas here, including with European Investment Bank, and we have the Luxembourg Stock Exchange who is the champion of sustainable bonds. So, the discussion of quality is more important today than ever.

Over the course of the last four years, the decision by the British people to leave the European Union has also caused a number of ups and downs and lots of discussions. The COVID crisis seems to have put that a little bit on the back burner, but it is still there, and the negotiations are still ongoing. We don’t know yet at this stage where they will end and thus, we do not know what the future relationship between the European Union and the UK will be. But where do you see the UK and the EU, as well as Luxembourg and the UK working together in the future once everything has been settled?

PG: “First of all, it is important to underline that the negotiation is done by the European Commission on behalf of the 27 countries; Members of the EU with the UK on this topic. Luxembourg has advocated in the forefront before agreeing under mandate, that the negotiations should be as wide as possible and cover a lot of ground. Financial services are unfortunately, not in the core of the discussion, but they play an important role in the background, I would say, of this negotiation. What is key is to find the golden mean between ensuring that the European Union doesn’t become hampered by the fact that it has a dialogue with the United Kingdom; in other words, that we are independent in deciding what we want to decide specifically, for example, in the single market, which should not and cannot be slowed down by a country that is not a member anymore.

On the other hand, take into account that the United Kingdom has been a member of European Union for nearly half a century, and that for the time being, if we do a picture now, has the same rules and regulations in terms of single market as we have. So, the point of departure is different than with the discussion of a ‘third-country’. So, if we have a positive spin on this, this should cover the ground and help us find smart solutions in transforming the wide bridge that we had between the United Kingdom and the continent when the UK was a member transforming at least into a footbridge.

Now, to achieve that, there is different ways as a discussion on how the dialogue should take place in terms of Single Market regulation in the future. And second, how can the rules and regulation that exists in the UK in the future be declared equivalent to those that we have on the continent? Now, this equivalence system has existed in the past for ‘third-countries’ and was not so much in the limelight and was rather informal. The United Kingdom asked for a more ambitious and formal equivalence system that should be and could be discussed. But obviously, it depends on the full picture of the relationship that the United Kingdom will have with Europe. I think if the United Kingdom insists to a hundred percent of being totally autonomous, even independent in all the things it decides, it will have less leverage on the discussion of equivalence.

Minister Gramegna, you have been Luxembourg’s Finance Minister for six and a half years nearly to the day. In this time, what achievement are you most proud of? And what was your biggest challenge in this period?

PG: “This question about what has been achieved should be asked and answered by others than myself. But trying to be a little bit objective, I think that there are a few elements that I can put in the forefront, underlining that a finance Minister can do nothing on his own and alone. He needs to find a consensus in the government. What we have achieved all together in government is to ensure that Luxembourg keeps its AAA rating. Now, some consider that a very abstract thing, but people who are in the world of finance know how crucial that is today. There are only 10 countries in the world left that have AAA and we should value that as being quite an achievement. It has only been possible because we took measures that were not popular back in 2014 and ’15 to ensure that we would stay on a healthy financial path for public finances.

The second thing that I would like to highlight is the whole issue of tax transparency, exchange of information where Luxembourg has normalised its positioned compared to the rest of Europe. We were an outlier a little bit there and that had hurt our reputation quite a lot. Now, as a result, our reputation today as a financial center is much better than it was. We have become mainstream. And maybe as a paradox, I would say the fact that we have embraced automatic exchange of information, not only inside European Union, but at the level of OECD and other countries in the inclusive format. The fact that we have implemented the anti-tax avoidance directives one and two, many were afraid that that would lead to making us less competitive. I tend to think that it has made us more competitive. Many critics said that Luxembourg was thriving as a financial center because it had loopholes in taxation, because it was not a doing exchange of information or slowing it down at an international level.

Today, we know that that was not our key advantages. Had that been so, we will have a major problem. In fact, the Brexit situation has shown that we are quite attractive having been able to convince quite a few players, over 50, to come to Luxembourg to set foot on the continent, to have a subsidiary here and take advantage of the EU Single Market. So, I would say the reputation that we have improved is certainly a key advantage today for us.

Minister Gramegna, the next elections will be held in October 2023. That leaves you a little bit more than three more years in government, three years during which you will be able to continue to shape Luxembourg’s financial services industry and the role Luxembourg plays in the global financial services industry. How do you want to go about it? How do you want to use that time at your disposal?

PG: “First, I think it is important to underline that Luxembourg has come out of the sanitary crisis up to now in a reasonably good manner, both in terms of health and also in terms of a financial stability, because we had room for manoeuvre to make sure that the crisis can be weathered with social measures like short labour and others in such a way that people do not suffer too much. That underlines that political stability on the one hand and AAA are key advantages, not only for today, but also for the future. Now, obviously, we’ve been forced to go on international markets to support these measures and take out loans, but we had more room for manoeuvre than others. But on the other hand, we need to also focus on having financial stability and the sound public finances in the future.

Now, a natural thinking that comes to us in that context is to know what’s going to happen in terms of taxation. Now, I think for the short term, it is key to assure enterprises and physical persons that we will not raise taxes, neither for persons, nor for enterprises, because that’s not at all what you need in a time of recession like this one. Second, is there a room for manoeuvre for tax alleviations? It’s too early to answer that question. We need to see what the economic rebound will be. But another thing we have to keep in mind is that if there is a rebound, and there will be one, we also need to look at and concentrate on the quality of the growth.

That means that tax decisions and tax and alleviations that we might decide, we should keep the sustainability issue in the forefront and make sure that what we decide is specific and encourages our economy to go towards respect of nature and also climate change. And last, but not least, incentives should be given to all those who want to innovate and digitalise because digitalisation is key, not only for the financial centre, but for all the other parts of the economy. So, you see, the tax reform that is in the planning, that is in the making will be impacted by the COVID crisis because we will certainly have a more targeted response to the issue of competitiveness of our economy.

Minister, whenever you are not in charge of government affairs, what is it you do? I suspect somebody like you with your curiosity also likes to spend his time reading books. So we wanted to ask you, what was the last book that you have been reading if you want to share that with us?

PG: “Yes. In the COVID crisis, two things I did more than usual; one is cooking to the great satisfaction of my wife, and the second one was to read a little bit more. I’d like to spend a few seconds with you on the book by Amélie Nothomb called La Soif in French means ‘the thirst’, being thirsty. This book is quite interesting and obviously, reveals the personality of this writer who is from Belgium and was born and raised in Japan, where I also had the opportunity to meet her. This lady has this aptitude to look at things from a different perspective. Now, the book that I am talking about, about thirst, ‘La Soif’, is a totally original way of describing the life of Jesus Christ starting with the wedding where he transforms water into wine and where the couple that gets married in the beginning of the book, instead of praising the fact that he transformed water into wine, complains about the fact that he did it at the very last minute and nearly spoiled the feast and he could have done it right in the beginning and everybody would have been much more relaxed.

So, you see, perspective matters. Now, this COVID crisis, I think, has changed our state of mind in many ways and the way in which we look at the future, in which way we would like to have growth, we would like to transform our lives. It’s different today than three months ago. So that’s why I love that book.

NM: “Minister Gramegna, thank you very much for taking the time to share your views with our listeners. It is very important in these times of uncertainty to be able to get the insights of people like you who help to shape finance. Thank you also, to our listeners who have tuned into this very maiden edition of our podcast. In our next episode, we will be discussing with Miles Celic, my counterpart from London, the CEO of the CityUK, the industry led by the representing UK based financial and related professional services. We are looking forward to hearing his insights into how the UK is addressing current challenges, which obviously, include the current COVID crisis, but also issues around Brexit, around sustainable finance, around FinTech and around globalisation, as well to discuss the future relationship with London in general. If you would like to be up to date and don’t miss out on one of our latest episodes, please feel free to subscribe to our podcast on iTunes, Spotify and Google. You can also find more information on our website, .”