Luxembourg Welcomes Basel III Banking Regulation at Ecofin Council

On Monday 7 and Tuesday 8 November 2022, Luxembourg's Minister of Finance, Yuriko Backes, took part in the meetings of the Eurogroup and the Economic and Financial Affairs Council (Ecofin) in Brussels, Belgium.

During the Eurogroup meeting, eurozone finance ministers discussed the deteriorating macroeconomic outlook as well as the uncertainties in a difficult geopolitical context marked by a multitude of crises, including the Russian war in Ukraine. The focus of the discussions was in particular on the measures taken by Member States to protect households and businesses from rising energy prices. These discussions took place in the light of the draft budgetary plans for the year 2023 that the Member States submitted to the European Commission by 15 October 2022.

Minister Backes commented in this regard: “It is very difficult to predict where we will be in a year and we have to proceed with caution. This is why it is important that we continue our regular discussions on our respective measures, and more specifically on their effectiveness, since they have a significant budgetary cost. The sustainability of public finances must be ensured at all times and the exceptional budgetary measures adopted in response to the current crisis must continue to be targeted, so as not to contribute unduly to inflationary pressures.”

At the Ecofin Council, the 27 ministers adopted a common position on reform measures aimed at further strengthening the resilience of the European Union (EU) banking sector ("Basel III" regulation). Minister Backes underlined: “Luxembourg welcomes this package, which is an important step in the implementation of the Basel III regulations. The text is balanced in that it reflects the importance of ensuring sufficient capitalisation at all levels of banking groups, including at subsidiary level. This is the backbone of a strong banking sector, fundamental for maintaining financial stability and which can fund the real economy across Europe. Furthermore, Luxembourg welcomes the compromise found regarding the proposed regime for third-country branches and that it remains in line with the principles of an open economy, while ensuring a robust prudential framework.”

The European Commission also shared its analysis of the American law on the reduction of inflation and the possible consequences for certain sectors of the European economy. Dialogue is continuing in this regard between the European Commission and the American authorities in order to find solutions in the interest of good transatlantic cooperation.

Ahead of Ecofin, the 27 finance ministers had an exchange of views with the ministers of the countries of the European Free Trade Association (EFTA) on energy prices and inflation, with a view to better coordinate policies in Europe.

During her trip to Brussels, Minister Backes had the opportunity to meet several of her counterparts. An amendment to the Franco-Luxembourg tax treaty has thus been signed with the French Minister for the Economy, Finance and Industrial and Digital Sovereignty, Bruno Le Maire, to increase the tax tolerance threshold from 29 to 34 days from 2023, thus allowing French cross-border workers to work 34 days outside Luxembourg without being taxable in France. Minister Backes also had meetings with the new Estonian Finance Minister, Annely Akkermann, the Croatian Finance Minister, Marko Primorac, and the Belgian Minister, Vincent van Peteghem.

Finally, Minister Backes spoke at a reception organised by the representative office in Brussels of the Luxembourg Bankers' Association (ABBL), the Luxembourg Association of Investment Funds (ALFI) and the Association of Insurance and Reinsurance Companies (ACA). In her speech, the Minister stressed the importance of smart regulation, with a view to sustaining the competitiveness of the European financial sector, while guaranteeing its openness to the rest of the world.