Luxembourg is convinced of the importance of the smooth and unhampered functioning of the single market, including for financial services, as well as of the necessity of sound public finances in order to foster prosperity and stability of the euro area as a whole.
Luxembourg will therefore not adhere to policies that intend to renationalize elements of the single market, nor introduce criteria that are contrary to the spirit of the Treaties and detrimental to our economies. The spirit is and must remain European.
As a matter of principle, Luxembourg is therefore concerned about recent statements and declarations that were made since the crisis in Cyprus sharpened by (1) making comparisons between the business model of international financial sectors in the euro area and by (2) making more general assessments of the size of the financial sector in relation to a country’s GDP and the alleged risks this poses for economic and fiscal sustainability.
Luxembourg fully supports the adjustment program for Cyprus which is necessary in order for Cyprus to restore sustainable growth, re-establish sound public finances and re-gain access to financial markets. One element of the conditionality relates to the restructuring of the financial sector. It was considered that the Cypriot financial sector is structurally unbalanced and that measures need to be adopted in order to down-size specifically the banking sector in order for it reach EU average by 2018. This is considered to be an exceptional measure.
As regards the business model of the financial sector in Luxembourg, it is quintessentially an international one within the euro area, acting as an important gateway for the euro area by attracting investments and thus contributing to the general competitiveness of all Member States. Its diversified customer base, sophisticated product services, efficient supervisory mechanism and rigorous respect and implementation of international standards add to its uniqueness.
The proportionality of a financial sector cannot be determined by relating the size of a financial sector to the GDP of a country. What matters are primarily two aspects: (1) while the first aspect touches on the quality and solidity of the financial sector, (2) the second element relates the size of the financial sector not to a national economy but to the euro area or single market as a whole. The restrictive approach underlying proportionality is indeed also contrary to the political and conceptual design of the single market.
It is precisely also in this spirit that Luxembourg has agreed to establishing a fully-fletched banking union in the euro area, starting with common supervision, but inevitably leading to guarantee deposits and a common resolution mechanism.
More on Luxembourg’s position can be found here.