Alfi’s director general, , welcomed the results of . “The agreement that was reached between stakeholders to support households in the face of rising energy prices is appreciated. It will be a significant cost for the state, but I believe that it is a measure that will be favourably interpreted and understood by households,” he said in an interview.
However, Thommes said that the agreement will have consequences for the financial sector. “There will be index rounds that will fall next year, one in February and another that was postponed from last April.” The two index hikes represent “a rather significant cost”, not only for companies, but also for the competitiveness of the financial centre. “Especially since the wage costs have already increased by 5% in the first half of the year. This will be a serious blow to our competitiveness.”
The key element is the international character of Luxembourg as a financial centre, he said. “We will have to see how the players who are essentially of international origin will lament this cost increase. They traditionally find it difficult to grasp the automatism of indexation. This will be reflected in their business plans for their Luxembourg entities, both for next year and for the years to come.” This is likely to generate misunderstanding for a majority of international players in the marketplace.
Concern for competitiveness
Thommes has already received feedback from the heads of some financial companies in Luxembourg since the announcement of the results of the tripartite negotiations between the government, employers and unions. Local bosses are facing a delicate situation. “They have to convey the message to their parent companies that wage costs will rise sharply next year and that this will have an impact on the profitability of the local company. The parent companies are not going to like the cost of that.”
Concerned about the capacity of the country to remain competitive for foreign financial institutions, Thommes pointed out that “the state will finance the tripartite measures to the tune of one billion euros, which will bring the country closer to the 30% threshold of the public debt/GDP ratio.” This would then potentially affect the triple A rating given to Luxembourg by international rating agencies and, de facto, the country’s financing capacity. “A rating lower than triple A will have a cost insofar as institutional and international investors who would like to invest in the case of a government bond would then demand better conditions.”
The loss of a selling point
In addition, the risk of the country losing its triple A rating has a bearing on the financial sector itself. “For the financial sector, having a top rating is a selling point and a stability factor. International investors pay particular attention to it,” said Thommes.
In a public speech on 13 September, finance minister (DP) mentioned the , due to the importance of maintaining healthy public finances and the triple A rating, both of which are drivers for the country’s competitiveness as a financial centre.
Luxembourg’s financial centre is already facing increased competition, noted Thommes. “The players who set up in Luxembourg or who operate here make sure that their profitability remains competitive with what they might find in other countries where they do business.” And this is not just about labour costs, but also about taxation as a whole, whether it is the subscription tax imposed on investment funds or the corporate tax rate.
Originally published in French by and translated for Delano