Luc Frieden, Discours à l'occasion de la journée boursière 2010, Luxembourg

Extraits de discours

1. Europe and the political organisation of the global economy

I do believe that the G-20 is a necessity, it’s a reality. But it’s not the ideal world because its membership is not clearly defined, because there are no clear rules of procedure, because not all those, who are affected by those decisions, sit around a table. I think it’s therefore necessary that the voice of Europe is strong and heard within the G-20.

The European Union is the place where, with regard to this part of the world, decisions have to be taken. But those decisions that are being discussed in Europe only make sense if they are brought into the global world. And therefore it is a key necessity that Europe has strong institutions which define the position of Europe after having listened to each other and that that position is then voiced in international fora, such as the G-20.

The fact that Europe, the rotating Presidency of the European Council, together with the President of the European Commission is attending the G-20 meetings is positive. But this European voice will only be heard in the G-20 forums if the others, who are European members in the G-20, allow for the rotating Presidency to speak on behalf of Europe. Their voices will only be supporting voices of the European Presidency’s voice. Otherwise the voice of Europe will be diluted, the voice of Europe will not be heard, and others will decide on the future of our continent.

There are 5 European seats around the G-20 table. There is one voice that is necessary, and that is the voice of the European Union as a whole.

2. The need for new international standards in finance

We need new, adapted rules on international accounting standards. We need mechanisms on how to evaluate various assets that banks own. All these are lessons that we learned from the crisis. I don’t think that these are merely technical issues. And I regret a little bit that we, in the various European governments sometimes delegate these issues to technical bodies. These are, at the end of the day, political issues, because they determine how we define what is important in a company, whether we look at the short term, the medium or the long term in assessing the health of a company. Therefore this has to come back to the European political forum after the technical work.

We must make sure that rating agencies are controlled, are supervised according to international standards, and that we can really trust an assessment they make of individual companies and countries. All this has to be improved. This is also the task of Europe, it is the task of the European Commission, it is the task of the European Council, it is the task of the European Parliament. And we must make sure that this works.

Decisions are made in the various European institutions. They are in the interest of Luxembourg. This being a European and international financial centre, we need international standards when it comes to banks, when it comes to all the aspects regarding banks. Only then can we distribute our products, our services around the world in a trustworthy manner.

3. European cooperation in times of crisis

…we realised that the competition had become tougher, that there were tendencies of protectionism, each country wanted to protect its national corporations, which is normal in the first run, but often goes at the expense of others. That is of course something which is neither European, nor in the long-term interest of the European continent.

Europe was set up to have free movement of capital, of goods, of services and of persons. And everything we do to seal off markets again, is a short-term view which might temporarily save jobs, but it will not lead to a protection of jobs, and will not lead to growth increases in the long term. The only solution is that we work, and continue to work for a single market that works well, and to fight against all protectionist tendencies.

We need strong and friendly ties to our neighbours. I think there is most probably a need for more meetings of regional groups of countries, not as an alternative to Europe, but to get a better understanding of a number of positions. I think that we will have to evaluate how we can strengthen the Benelux again, which was not a strong entity in the recent past, except on individual topics. There may be other informal gatherings that can be useful. We need international partners. We must make our voice heard, and the main place where we can do that is in Europe, in bilateral meetings and in the European Council of Ministers.

4. The Luxembourg financial center after the crisis

… the long-term potential of growth of this financial centre is most important. I think that we have a number of advantages that we have to review and that we have to strengthen. The international dimension of this financial centre is unique in terms of number of nationalities working here, with all the know-how that these people bring, and the international setup of the financial institutions.

If we only defend the past, we will not acquire new clients. If we open ourselves to the future, while at the same time keeping the essential key elements that have led to the trust that the clients have in the financial centre, then I think that we will be successful in the future.

The client of the future needs much more sophisticated advice than he needed in the past. He has lost trust in the financial services, due to the crisis. It is the task of the bankers to give back this trust by explaining to the client what he can expect, what the risks are, what the taxation surrounding the various products he is being offered is. It is this element of advice, of professional, highly qualified advice that must be a key element in the international advice that the Luxembourg banks have to give in the future. That requires a better training and a constant questioning of the procedures that exist.

5. The future of bank confidentiality

Within the EU, within Europe at large, the question is, how much privacy do we want, how much privacy do we need? We believe that privacy is an essential tool when it comes to protecting the individual, that privacy is an essential tool in wealth management and private banking. People do not want for everybody to know what they own. But it must be very clear to us as well that all the countries have a right that their citizens comply with the laws of their country, including their tax laws.

For Luxembourg it’s clear that we don’t want to be a place where people come at the expense of the interest of their home country. They should come here because they benefit from the free movement of capital, the free movement of services that are enshrined in the treaties of the European Union, which are a key element for freedom and prosperity of this continent and of this country.

What does that mean for the European discussion in which we are right now? I can tell the representatives of the countries of the European Union that are here tonight, that the various texts that are currently on the table of the Council of Ministers of Finance of the European Union are not satisfactory, because they are, to a large extent, contradictory to other decisions that have been taken in the recent past.

The member states of the European Union that sit at the table of the G-20 have expressed themselves in favour of the OECD-standards within the G-20. Now, of course, these countries can say that within the European Union there should be different rules, there should be higher standards. That is something that is possible within the European Union.

But if we do that, then we must apply it in a coherent manner to make sure that in all the agreements we make as the European Union with third countries, we apply the European standard, which in that case would be higher than the one of the OECD. And the question is to see whether this would be in the interest of Europe and the European Union. Second, it must be coherent with the internal market. And that is currently not the case. There are a number of countries in the European Union that have rather strict bank confidentiality rules combined with a withholding tax.

What would this mean in practice? It means that the residents of such countries, if they invest or deposit their money in their home country, will pay a tax, i.e. the withholding tax. No information would be disclosed by the bank to the tax administration of their country. But if those citizens would deposit their money outside their home country, still within the European Union, then different rules would apply and those would be the rules of automatic exchange of information. That is contrary to the spirit of the internal market.

There are two aspects which have to be taken into account for those texts that we currently discuss to be improved. Either we use a different standard from the OECD and then we have to apply that standard to the internal market and in relation to third countries or we consider that we keep with the steps the G-20 took in which case I think we have a level playing field. We make sure that taxes are paid, we make sure that international rules of tax compliance are complied with and we make sure that people can choose the best place to invest their money.

I regret that in that debate very few people notice the excellent functioning of the withholding tax that was introduced a few years ago, in July 2005. I recently looked at the figures of 2007 and 2008. In 2007 and 2008 Luxembourg transferred a total of 320 million Euros of the withholding tax to other members of the European Union. If the scope to which the withholding tax currently applies would be enlarged - which is a proposal that is also on the table of the Council of Ministers of the European Union - I think this amount would increase substantially and the system would be even more efficient.

…banks in this country should use the next 5 years make sure that the clients they advise get the best products, the best advice and that they can live in a situation which makes them happy here and safe at home.

I am still surprised that the G-20 did not advocate automatic exchange of information despite the fact that those who sit at the European table claim that they are in favour of automatic exchange of information.

6. The investment fund sector

The investment fund business is the other key pillar of the financial centre. We are strongly committed to further developing it. We will make sure that the legal framework of the financial centre for investment funds will be substantially improved.

There are a lot of opportunities for this country. It is essential that we look towards opportunities while constantly improving the framework. Not only looking at the stock exchange, wealth management, investment funds, but also at all of the auxiliary services. This financial centre has become strong because it had to offer a diversified range of services. And that is what I want to improve, not only by defending the past, but by opening to the future.

We must make sure that the rules will not be bureaucratic rules. That also counts for Europe, so we must watch out very much that in regulating the financial services sector we do not overregulate, including when it comes to capital requirements and similar rules. We need to change some rules, but overregulation may kill the financial activities. Finding the balance between the various interests, with a little bit of common sense is a key challenge, both for Europe and also for Luxembourg in line with international standards.

7. Public finances

I think it is acceptable to use public debt to finance investments in infrastructure. If we would use it for current spending or for social transfers, it would be a disaster, because it would mean that in the long run we would have to substantially increase our taxes. And if we have to increase our taxes, this country is not competitive anymore. If others will decide at the end of the day what we have to do, as in the case of Greece, the most recent example, I think that we would lose our sovereignty. "We are not Greece", a journalist wrote the other day. Well I would say, we don't want to become Greece.

8. Conclusion

…we hope that the people in this country, those who speak on behalf of the people, will understand what is at stake. The long term is at stake. If we are in debt we are not free anymore. If we are in debt we will have to repay that debt. The future generations will have to repay the debt we have made by increasing taxes.

We are a community where one depends on the other and therefore we have a common social responsibility. Democracy is an important tool to achieve this. Democracy is more than the "facebook democracy" where someone says a certain thing and others believe that that is the view of the majority. It is important that all the voices are heard, but at the end of the day what matters is to get a parliamentary majority to achieve a certain goal and that those who have to fight for that majority, will be able to explain to the citizens of this country, to the taxpayers and the companies of this country what is at stake.

In the months to come we need 2 things: strong leadership and a mentality of change.

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