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Hands off our finance sector, Luxembourg warns

Published on 27/03/2013

Luxembourg railed on Wednesday against what it fears is a new eurozone position that oversized finance sectors must be scaled back in line with national economic output following the Cyprus banking debacle.

Former Eurogroup chairman Jean-Claude Juncker’s government is “concerned about recent statements and declarations that were made since the crisis in Cyprus sharpened”, a news release said.

Specifically, it rejects “general assessments of the size of the financial sector in relation to a country’s GDP (gross domestic product) and the alleged risks this poses for economic and fiscal sustainability”.

The government said the Luxembourg finance sector acts as “an important gateway for the euro area by attracting investments and thus contributing to the general competitiveness of all member states”.

Juncker’s successor as eurozone head, Dutch Finance Minister Jeroen Dijsselbloem, has said that the Cypriot financial sector was too big compared with the country’s overall gross domestic product, a problem that has forced Cyprus to break up one Cypriot bank and downsize another in exchange for an international bailout worth 10 billion euros ($13 billion).

While few eurozone economies depend on the banking sector as heavily as Cyprus does, Berenberg Bank economists noted on Monday that bank assets in three other eurozone countries were bigger as a percentage of gross domestic product than in Cyprus, where they amounted to more than 700 percent of GDP in 2011.

In Luxembourg, the percentage was an astounding 2,500 percent, the economists said, while in Ireland they were more than 800 percent and in Malta close to 800 percent. The eurozone average was given as a much more modest 360 percent.