Our financial centre - everybody's business

In recent months, the Covid-19 pandemic has had far-reaching consequences. It is both a public health disaster and a catastrophic situation for our economy.

However, Luxembourg was able to respond forcefully to this challenge. We provided the resources our health system needed in this unique situation. In addition, we implemented a solid series of measures to support our companies and save our jobs. The Covid-19 crisis will cost us up to 3 billion euros this year.

Such a response to the virus was made possible through the strong economy we have been able to build over many years, driven not only, but to a large extent, by our financial industry.

We have managed to turn this sector into a real industry in Luxembourg, which may sometimes attract criticism from abroad, but often also admiration. It’s true that the reputation of the financial industry worldwide was badly damaged by the 2008 financial crisis, and certainly not without good reason. But let us never forget that the main function of the financial industry is to manage our savings and help us and our companies in financing our ventures. Our banks, investment funds and insurance companies in Luxembourg definitely fulfil this role. During this crisis, banks have helped companies by extending loans. Moreover, after last year’s tornado, insurance companies did not leave people in need and have paid out around €65 million to the victims to date.

However, our financial centre still struggles with critical voices that accuse us of banking secrecy or who were only made aware of Luxembourg due to LuxLeaks. Our financial industry has indeed never consisted solely of our banking secrecy, and LuxLeaks was not directly related to the activities of our banks, insurance companies, and funds.Nor can our success be defined by these activities, as demonstrated by the success we continue to experience in a rapidly shifting environment.

For example, we are the second largest investment fund centre worldwide after the USA. This has been possible as we have been able to distribute funds from Luxembourg throughout Europe, and now to more than 70 countries around the world. Our stock exchange listed the world’s first green bond in 2007 and the experience we have gained since then has made us the world leader in sustainable bonds. Isn’t that admirable! When our British friends decided to leave the EU in 2016, over 60 financial institutions relocated part of their activities from London to Luxembourg. This shows that we certainly are one of the largest financial centres in Europe in this field.

Today we are considered a highly specialised financial centre in Europe, that gained an important role in international cross-border business thanks, in part, to our linguistic and cultural competences. The more countries are involved in an operation, the more laws, administration and languages are involved and the greater the complexity. This is precisely where we play in the European, if not in the global, Champions’ League. A financial institution wishing to distribute a fund in various European countries prefers to do so from Luxembourg, because our expertise enables us to ensure that the various regulations are complied with. Even in private banking or life insurance, it is precisely this specialisation, built over decades and still prevalent today, with no banking secrecy and no tax advantages, that ensures that Luxembourg is a major player.

This success is beneficial for all of us because it benefits the State and all its people.

Over the past ten years, the share of the financial industry has remained relatively stable at 30-31% of our total economy. Given that our economy has grown strongly over the years, this means that both the financial and non-financial shares have grown at the same rate. But it also demonstrates that, no matter what happens, the financial sector is and remains the most important part of our economy.

According to a study by the Economic and Social Council, the financial sector accounted for 71% of municipal taxes (impôt commercial communal) for financial year 2017. This means that it finances, to a large extent, the initiatives of the municipalities that simplify or improve citizens’ lives, such as daycare centres, swimming pools or football pitches, just to name a few.

The contribution of our banks, insurance companies, funds and the consultancy sector (lawyers, accountants, auditors, accountants, etc.) to the State’s tax revenue rose from 3 to 4 billion between 2011 and 2018. The subscription tax (taxe d’abonnement) paid by our funds alone generates around one billion euros a year for the State. Over the years, they have thus made an important contribution to government spending, whether it be to the salaries of civil servants or investments such as the tram or our roads, and of course to our exceptionally good social security system, our pension and health insurance.

Furthermore, this success is beneficial for all of us because it creates many jobs.

Many people associate the financial centre primarily with older men in striped suits. This is the image of a banker, suitably completed with a sizeable waistline and perhaps even a cigar in mouth. The reality, of course, is quite different, and our financial industry is by far not just made up of “fat cats”, but of people like you and me.

Our financial centre employs around 51,000 people, half of them in the banking sector, 31% in the fund sector, 8% in insurance companies, and 11% in consultancies (trustees, lawyers, etc.). This underlines the great diversity in the various sectors of our financial industry. But there is also a large variety of positions within the different sectors. These range from economists, lawyers and accountants to cooks, drivers and security staff, not to mention, of course, professions such as assistants, without whom we would not do well despite the growing digitalisation. Another sector that is becoming increasingly important due to the phenomenon of digitalisation is, of course, that of software engineers and all related professions, such as graphic designers.

Even though it happens from time to time that a bank has to announce a social plan, one hardly reads how many jobs are created at the same time in another financial institution. In fact, the number of jobs in our financial centre has risen by 2% year-on-year since the last financial crisis.

Although our banks have experienced hardly any employment growth, their overall employment numbers have remained stable rather than decreasing. Compared to other financial centres, this is not all negative. Growth was mainly in funds (+3% per annum) and especially in the area of advisers (+7%).

Our financial industry not only creates jobs for its own activities, but also helps to create jobs in other fields. Every job created in the financial industry contributes to the creation of another 1.4 job in other sectors. By way of example, his means that if we create two jobs in the fund or insurance sector, we will support almost three positions in the hotel, restaurant and café sector (Horesca). This means that in addition to the 51,000 people working directly for the financial industry, 71,400 other jobs in other sectors are supported by the financial industry.

Tax revenues as well as the jobs created by our financial centre show how important this sector is for our country. They are the heart and lungs of our economy, on which we can and should continue to build in the future.

The success of our financial centre means further success and prosperity for our country and for all who call it home

Nicolas Mackel

CEO Luxembourg For Finance,
Agency for the Development of the Financial Centre
(article from the LW of 12 September 2020)