News - 01.04.2020

How our financial industry is dealing with the crisis

  • The Financial Centre

As we have entered the third week of confinement in Luxembourg, medical staff continue to give their utmost to tend to the stricken and staff at pharmacies, supermarkets, bakeries and other essential outlets as well as those delivering goods are making sure we miss nothing. Their selfless contributions to our wellbeing will be remembered for very long.

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In this epoch-making turmoil, the financial industry in Luxembourg also continues to deliver so that companies around Europe and the world continue to have access to financing. Keeping the markets running and the flow of finances uninterrupted is a high priority indeed. In this context, 85-90% is the share I keep being told by different firms of their staff working remotely and it all seems to be going well. It is made possible by the broad availability of optic fibre and the low latency it allows as well as the ubiquity of mobile devices which now, quite literally, come in handy. It will certainly accelerate the rolling out of 5G network capabilities. The current widespread shift to digital tools and remote working will assuredly be a change of paradigm that will be hard to shed completely once the crisis ends. These firms all remain operational and continue to serve their customers so that the engines of the global economy can continue to turn, albeit at lower speed.

This is made possible also by the supervisory authorities of our financial industry which were quick in issuing valuable guidance on specific issues such as requirements to manage these novel working arrangements and on reporting. In partnership with the industry associations they have drawn up Q&As which are being updated on a daily basis. These are available on the respective websites.

While it is certainly too early to give an authoritative assessment as to the consequences for Luxembourg’s financial industry, we keenly await the end-of-month and end-of-quarter figures due this week. They will give us a first real assessment of what is happening in our economies, even if many of the consequences will only really be felt in a few weeks or months.

What we know so far is that, besides the market rout with losses of over 20% in value causes a high degree of volatility, the situation is relatively calm, all things considered. In fact, many projects of investment funds to be set up are continuing unabated for instance. Keeping cool heads and strong nerves is what will get us through this.

There are a number of other points in our favour. For one, the regulatory framework set up after the Global Financial Crisis means that Europe’s banks have the necessary capital buffers that make them far more resilient than they were a decade ago and we are much better equipped to protect investors. According to Moody’s (, Luxembourg’s operating environment is particularly resilient against such shocks due to the banks’ very high capitalisation.

Another point is Luxembourg’s very prudent management of its public finances over many years, which now gives it the necessary breathing space to address the fallout of the corona-virus crisis with a massive and unprecedented package of support measures representing some 15% of GDP. Our current debt to GDP ratio stands at 21% and the commitments made by the government will still keep this well below 30%, half of what the Stability and Growth Pact had allowed.

The measures adopted by the government will help avert lasting damage and mitigate the most brutal economic effects of the confinement for some people and companies. They will also help set the economy on the right track to be able to recover more quickly after the crisis. In conjunction, with the measures adopted by other governments around the world and EU as well as other supranational institutions, they will help avoid that this health crisis will turn into a deep economic and then a social crisis as happened after the last crisis. Even Ronald Reagan would have to agree that this help from government is more than reassuring…

Finally, we take solace in the growing number of examples of cooperation between countries, from delivery of medical material by our Chinese friends to the transfer of patients between European countries or the pragmatic approach of our French and Belgian neighbours when it comes to the administrative status and tax treatment of tele-working currently being undertaken by the numerous commuters from these countries (surely to be followed soon by our German neighbors, hint, hint). More important still is the growing recognition that we will have to come together as Europeans and as an international community to tackle this crisis. This pandemic ignores borders and thus no country can win against it on its own and, given the level of interconnectedness, no country can save its own economy if all the other were to fail.

Nicolas Mackel, CEO, Luxembourg for Finance

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