Pierre Gramegna – The Minister of Finance, Luxembourg
Excellencies, ladies and gentlemen, dear Jacques, first I would like to start with something that I was not expecting. But Mr Cahen did something which was quite extraordinary. He probably did 20 to 25 sentences in Luxembourgish as a non-Luxembourger. That is a Guinness Book record [laughter in the audience]. Thank you.
Jacques has had a distinguished career. I had the pleasure to get to know him in the last couple of years and I was invited to two panels with him and it was a lot of fun. I will not reveal your age, but you are still as lively as if you were starting your career and that is quite amazing. I am not going to say all the wonderful jobs you have had. I am just going to say the following. Jacques de Larosière was able to explain simple things in a complicated manner when the circumstances requested it and he did that very well when he was a central banker, for example. On the other hand, when requested, he was extremely good at explaining complicated things in an easy manner and I can tell you, that this is challenging. And I think with that I have outlined how I personally look forward to the lunch time debate tomorrow at the European Investment Bank with the ministers of the Ecofin Council. Together with Werner Hoyer, we are looking forward to hearing your comments and advice on how to revive investment in Europe, how to continue building on the architecture of Europe and on the architecture of the eurozone.
Now, what a crowd! So many of you, so many bankers, and players in the financial services have found their way to Luxembourg, so it seems you like Luxembourg. I have good news for you. Luxembourg likes bankers.
I see your enthusiasm. I know this is not shared worldwide. Some of you have come from very near, walking distance. Some have come from farther. Walking distance, you go out of the Luxexpo here and you walk by the European Investment Bank, the European Parliament Secretariat, the tower where the council of ministers of the European Union takes place in April, June and October. That is walking distance. Europe is here at walking distance.
Now for those of you who come here for the first time, there might be a few. There is a lady next to me, Kara Stein. Maybe it is the first time. I haven't had the time to check. She probably thinks she is in a city state. She walks to the EU, she walks through the capital and she thinks, I am in a city state. You are not, Kara, I tell you. It is a huge country. [laughter in the audience]. It takes one hour from here to the northern tip of Luxembourg It takes three hours from here, from the airport - it is nearly walking distance to the airport - three hours and you will be out of the European Union…. That shows how small we are but this also explains how central we are. In three hours you can be out of the EU and then it takes five milliseconds, five milliseconds, to do a digital round trip for a piece of information from Luxembourg to any place in Europe and back. That is record time. We are the fastest in that. We have the best big data and Tier 4 data centers here in Luxembourg, which gives me the opportunity to say how much the job that you are in, is going to change in the future, because it is not about distance anymore. It is about how fast information can go and so this is the reason why our country has invested a lot in FinTech.
When you are as small as us you have to find a way to be more efficient. That is what we have done with FinTech, which is one of the core priorities that I have put on the agenda to make our financial centre efficient. Now despite this 5 milliseconds latency turnaround rate which is very fast, in the end, personal contact matters. You are more than 800 here tonight. I think it is a record for Eurofi and it shows that Eurofi has been extremely successful and it just shows that you need a personal contact. I could find this out when I attended last weekend the G20 in Ankara. It was the first time that I had taken part in the G20 of finance ministers because I was there on behalf of the presidency of the European Union, Luxembourg, being in the chair as you all know. It is also going to be the last time because the next time Luxembourg will be chairing the European Union is in 14 years ‘time. I won't be there anymore, unless eventually the Luxembourg GDP grows so extremely fast that we can join the G20. Fair enough, we have 3% growth, that is fast, but it won't be enough. So, I am realistic. It was my first and my last G20. I learned a lot of things at that meeting.
One is obviously it is always the personal basis that counts. The second thing is a non-event I'm sad to report. Europe was not at the core of preoccupation of the G20. That is good news. I tell you why it is good news. We are not the problem child anymore, as we have been for many years. Growth is back, although at a subdued level, roughly 1.5% and hopefully growing a little bit next year. Second, I think we have put our act together. One of the key discussions in Ankara was related to the lack of investment all over the planet and in particular in Europe. And the Juncker plan is one of the correct answers to the problem. We have still in Europe 30% to 40% less investment compared to the pre-crisis level. The Juncker plan has two features which I find extremely interesting. One is, for once, Europe acted fast. The legal framework is there and tomorrow at the luncheon with Werner Hoyer and with the EU ministers, we are going to discuss about implementation and make sure that private investment is on board. It is not about having public money raining in, it is about having a leverage with public sector, public investment, guarantees on the one hand, and then leveraging private investment on the other hand.
The third good news for Europe is the quantitative easing. Because there are many central bankers in the room, I am not going to dwell on it. I think central banks are doing a great job. I am not supposed to say so as a finance minister because they are totally independent, but I still say they are doing a great job. And last but not least, commodity prices are very low, which is very helpful for Europe. If you put all this together we have a lot of tail winds for Europe and in fact, if you are a little bit more critical, you say we should have much more growth than the one we have.
We need structural reforms if we want to grow faster. The US is doing great. It was clear in Ankara, the whole issue about when the rate rise is going to happen is in everybody's mind. Let us face it, it is not important if it happens in September or if it happens in December or later, I think the Fed has done a great job by announcing since 2013 that a rate rise is going to happen. The key thing is that it has to happen progressively and very slowly so that markets can digest the change in the direction of the rates. China has given us explanations. It was in original Chinese, the translation wasn't good enough for me so I cannot say anything about it.
The second non-subject in Ankara was Greece. It was not that nobody cared, but everybody was so absorbed by this theme in the past that everybody felt relief that we had finally found a solution in Europe. I am very glad to report this as a member of the Eurogroup and I salute my colleagues of the Ecofin Council who are with us tonight and with whom we found a solution in line with solidarity and responsibility.
I am pretty optimistic because the Greek government carried out a lot of prior actions front loading lots of things before we agreed on the €86 billion Euro package. We think that there is now a willingness to build confidence again. What has not been noticed enough, by observers is that the help is going to be disbursed step by step, so regular reviews will be taking place. The second thing is there are €35 billion that the Commission has earmarked for Greece, parts credit, parts subsidies and future subsidies that can be made available for Greece in a simplified manner. This bailout package is not just like the other ones and it is meant to work.
We are on the right track here and I want to underline that in the compromise of July 12th, there is a passage on debt restructuring. We have agreed that there is going to be a debt restructuring. We haven't said how, we just said that there was going to be no nominal haircut, but there will be a debt restructuring. We have designed a way to solve the Greek issue and at the same time we have shown that we have the tools.
Now the man who is disbursing the €86 billion is here with us tonight, Klaus Regling, thank you for your generosity [laughter in the audience]. The ESM is located, also, at walking distance from here. Five years ago with the first major crisis about debt there was no European stability mechanism. Now we have it and we Europeans are so bad at marketing. I look again at Kara, the Americans; you are so much better than we are at marketing. We should have come out and said we are so proud that we are using a tool that we have established, but we take that for granted. Everybody takes it for granted, it is not. But we have the appropriate tools now and that helps us to make progress.
Greece has also been a part trigger to the whole discussion of the deepening of the European Monetary Union (EMU). There are two schools here. There is a school that says now we had so many problems with Greece, let us not talk about it, I think that is the minority view. Then you have the majority view saying we have to learn a lot from what happened and try to have a stronger, I dare not say ever closer, European Monetary Union, because Jonathan Hill is not going to like that expression.
The Commission and the presidency have felt that we have to go more quickly into this, that is why it is a subject of tomorrow and the day after tomorrow's informal Ecofin here in Luxembourg. The Five Presidents' Report distinguishes between short term and long term issues for improving the Monetary Union. Let me first say that what we have to handle in the first place is the implementation of what we have. Once we have a reassurance that we are going to implement what we have, it will be easier to discuss how to deepen cooperation in the short term and in the long term.
A couple of words on the short term: It means reinforcing the Banking Union. It means strengthening the European semester. I am going to say something which is not appropriate. I think European Union should not be an animal farm as in George Orwell, where some countries are more equal than others. Everybody should abide by the same rules.
So last, but not least, the Capital Markets Union, I think there is a lot of expectations in the room on what is going to be delivered in this Capital Markets Union. It is a great project with some early harvest possible and some medium-term fruit that we can have. I can promise you that as a presidency together with Jonathan Hill who is here with us tonight, we are going to do our best to make sure that in terms of access to finance for SMEs on the one hand and securitisation on the other hand, we are going to have early results.
Securitisation is very close to your heart. This is a difficult subject because securitisation has suffered a kind of reputational damage. But we need it. We need swift and fast and efficient and transparent securitisation That would help a lot to leverage the investments that we need.
Long term, it all depends on what we are going to hear on Saturday. How keen and how quickly countries want to go further. Let me just say that long-term objectives have a kind of trap in themselves in the sense that some countries are going to be ready to go faster on short term if they know where the goal is, what the direction is and where we want to land. The discussion is going to be quite interesting and I think certainly not conclusive but it is a first debate and I think that really is suitable for an informal Ecofin Council.
Last but not least, before leaving this subject, let me also say that we have an issue here that is the 19-28 issue. No, it is not a birth date, it is not Jacques de Larosière's birthday by the way, it is not his birthday [exclamation among the audience], 19 is the Eurogroup, 28 is the EU. How do we reconcile that? How do we make sure that whatever we do at 19 with the euro is consistent and cohesive with what we do at 28? One big issue is the EU single market, which we all like, for its freedom. How can we combine all this? It is doable. If we want to find solutions we need to build confidence between member states so that we can discuss it openly and that is also one of the reasons why we have put this on the agenda.
Now the theme of acceleration of the EMU suits the circumstances well. There is another field where acceleration has been mind boggling I would say, defying Newton: this is the whole field of taxation. Who would have thought three years ago when the G20 and the OECD launched the BEPS initiative that it would conclude basically three years later? That is where we are in Lima at the IMF meeting in a month from now. The work of the BEPS will be finished. It will completely change the international taxation world as we know it. It was close to 100 years old, it was not fit anymore for the world in which we live and it is a challenge for all of us. It is a challenge for advanced countries, it is a challenge for emerging countries, it is a challenge for developing countries. We must ask ourselves what impact it has on EU matters. Knowing that taxation is a field where normally you need unanimity in Europe, it will have a bearing on what we do at the EU level and also what we do at the member states level.
Let me underline one item where we as a Luxembourg presidency have set a priority. We want to finalise under our presidency in the coming months, the automatic exchange of information on rulings, which the Commission tabled back in March and we want to finalise this by the end of the year. By doing so Europe will be a pioneer, ahead of the others, which I think we can do sometimes, but at the end of the day what we really want is a level playing field. So, you see that on this issue, like many others in taxation, we have a lot of challenges ahead of us. Let me make a brief incursion here on Luxembourg about taxation.
I think that in the year 2014 our country did a lot to become more normal in taxation. We have always respected also in the past all the legislation, all the treaties. We were always in line. That was not the problem, but now we decided in 2014 to be at par with the newest trends. We have abolished bank secrecy; we have adjusted to the automatic exchange of information, which started on 1st of January with no problem at all. We are early adopters for the exchange of information under the new common reporting standard starting from 2017. We are like all the others. In fact, we are the early adopters and it has served us well because our financial centre is doing well. It has not suffered from this change of pattern from this trend towards transparency. On the contrary, if I look at what the 145 banks tell me how they are doing, they are fine. They have challenges obviously. They have to adjust to this change but they're doing fine, and if I look at the fund industry for which we're most famous maybe around the world today, it has passed the threshold of €3,500 billion euro assets under management recently.
It shows that the choice of going from secrecy to service was the right one. The last, but not least, of the subjects we're going to address tomorrow is climate change. Climate change has lots of disadvantages but it has one advantage that you have already benefitted from today and that is our weather in Luxembourg, which is getting better and better. But there is no good reason not to act.
So on Friday afternoon we will be discussing that issue at the EU level: how can Europe give the decisive impulse to these negotiations? The EU countries are already the top financiers in the Green Fund. We are going to continue to do that, but I want finance ministers to be involved. The environment ministers have the lead but the finance ministers have to calculate behind the environment ministers how much this is going to cost We are not going to reach the €100 billion effort that is requested starting from 2020 if we want to do it with public resources, with public finances alone. We need an association with the private industry, with private actors. Therefore, we need the banks. We need the financial players because financing climate is a very complicated matter that involves international financial institutions on the one side, and investment funds and also banks on the other. Only in such a way will we be able to cope with this difficult subject, which is so difficult that it is exhausting me and it is going to stop my speech.
I have had the privilege of representing the EU presidency in Kyoto in 1997 and I attended the whole negotiation in Kyoto. And believe me it was the most fascinating negotiation I have ever done in my life. Basically I thought that we would never have an agreement but then we had one. At that time the agreement involved only developing countries. The others were present but the ones who took commitments were only the developed countries. Now the issue is to make sure that we have the whole planet taking responsibility to different degrees. The challenge is large but I am very optimistic because the conference is going to take place in Paris. Under the auspices of the Eiffel Tower nothing can go wrong. Thank you for your attention.
By J. de Larosière – President, EUROFI
By J. Guill - Director General, Commission de Surveillance du Secteur Financier (CSSF), Luxembourg
By G. Reinesch – Governor, Banque Centrale du Luxembourg