Director General of Luxembourg for Finance: ‘We cannot afford to cut all ties with China’

Nicolas Mackel agreed that the financial center’s “feeble recovery” following the pandemic did not last long. The repercussions of the war in Ukraine effectively halted that progress.

To illustrate this, Mackel pointed out that the assets managed by Luxembourg’s fund sector fell from 6 to €5.5 sextillion. According to the Director General of Luxembourg for Finance, this “naturally has an impact on the state treasury,” as the State receives less revenue from the subscription tax.

‘The index is a sort of golden calf in Luxembourg’

Mackel admitted that the current situation of rising inflation and energy shortages concerns both him personally as well as the entire financial centre.
Inflationary price hikes are “water to the mills of Europe’s populists,” according to Mackel, and their success is usually to the cost of financial centres.

For Mackel, the index is a sort of “golden calf” in Luxembourg. The Director General of Luxembourg for Finance pointed out that within the Organisation for Economic Co-operation and Development (OECD), the Grand Duchy is the only country with an automated indexation system, something which “international financial groups are finding increasingly difficult to explain to their headquarters”. For this reason, Mackel thinks that it is important to find a balance between wage indexations, high taxes, and the necessary appeal of the financial centre.

Pierre Gramegna is ‘the ideal man’ to lead the ESM

When asked about former Minister of Finance Pierre Gramegna’s bid to become the new head of the European Stability Mechanism (ESM), Mackel stated that, in his eyes, Gramegna has “all the necessary skills for the job” and would be “the ideal man for this position”. Mackel also thinks that Luxembourg’s former Minister of Finance has a real shot at becoming the successor of Klaus Regling.

‘We cannot afford to cut all ties with China’

When it comes to Russian funds in Luxembourg, the Director General of Luxembourg for Finance rejected any concerns, stating that the assets of Russian oligarchs in Luxembourg are “trivial”. The Grand Duchy is a “secondary theatre of war” and Mackel stated that he is much more worried about Europe’s energy dependence from Russia.

In this context, Mackel also warned against radical decisions regarding China, despite all of the renewed criticism from human rights activists recently. “We cannot afford to cut all ties with China,” the Director General of Luxembourg for Finance stated.

Housing is ‘the number one problem for young people’

For Mackel, the challenges faced by Luxembourg’s financial centre are “very big”, particularly because banks are struggling with official requirements and high costs. The Director General of Luxembourg for Finance expects further mergers and consolidations in the future.

Nicolas Mackel estimates the current tax burden for banks at around 18%.

Mackel also addressed the housing crisis, agreeing that it is “the number one problem for young people,” especially when it comes to attracting foreign talent to Luxembourg. The Director General of Luxembourg for Finance believes that adjusting taxes is not necessarily the best solution to the problem, and that instead, the offer should be expanded, including by constructing higher buildings.

According to Mackel, the State should keep a close eye on Luxembourg’s public debt, which is currently at 26% of the GDP. If the limit of 30% were to be reached, the country could risk losing its Triple A rating, which is still a “main selling point” abroad, Mackel concluded.