From a Covid-19 rebound to Brexit fall-out

ALFI Rentrée, Day 2

Pierre Gramegna, Luxembourg Minister of Finance

Luxembourg’s economy is poised to rebound more strongly than other European countries this year, finance minister told his virtual audience on the second day of the ALFI Rentrée conference. If current trends are maintained, GDP is forecast to shrink by 6% this year, compared with an EU average of 8%-9%, followed by a 7% rebound in 2021, returning the economy to its pre-pandemic size.

“I decided on day one of the crisis that this was not the time to save,” Mr Gramegna said. Luxembourg’s is among the most ambitious EU economic support programme, totalling 18% of GDP including €4bn of debt moratoriums – €2bn of which remain in effect. “Obviously the financial situation for this year doesn’t look good,” he admitted, adding: “We will have to live with Covid-19 until there is a vaccine, respecting distances, keeping remote working but living as normally as possible.”

Mr Gramegna hopes to maintain as constructive a relationship with the UK as is possible after Brexit fully takes effect, but he admits that even the ambition to replace the previous broad span across the Channel with a footbridge is now open to question. Arendt partner Claude Niedner said: “No-one expected the UK government to propose legislation that would breach international law, but we must now prepare for a messy divorce.”

He highlights the risk that delegation to UK asset managers is being dragged into the debate, threatening the outsourced portfolio management model that has helped make Luxembourg the world’s leading cross-border investment fund hub. Michael Collins, director of government affairs at Prudential, said: “ESMA proposes replacing qualitative criteria on delegation with quantitative ones and designating critical functions that must be carried out internally. But it doesn’t explain why changes to the current model are necessary and what the problems are.”

On stage from left to right: Paul Van den Abeele, Jean-Marc Goy. Via video call: Pablo Portugal

In the meantime, ALFI Rentrée panellists hope Germany will fulfil its promise to revive the EU capital markets union – and remedy some current failings. Pablo Portugal, director of the Association for Financial Markets in Europe, says the EU’s securitisation regime suffers from a lack of proportionality, partly because of the sector’s role in the 2009-09 financial crisis: “Mistakes needed to be corrected, but the balance has swung too far.” Capital Group conducting officer Jean-Marc Goy point to the divergence of marketing rules between Member States caused by the ‘gold-plating’ of EU rules.