Social partners pessimistic over future of financial services sector

The crisis in Luxembourg’s financial services sector has continued to attract widespread attention since the beginning of 2010. Both the Luxembourg Bankers’ Association and the Luxembourg Association of Bank and Insurance Employees are being highly cautious in their forecasts for 2010. Many people think that the financial services sector will no longer drive employment, the state budget and the country’s economy as a whole in the way that it has done before.

Decline in financial services sector employment

The Luxembourg Association of Bank and Insurance Employees (Association Luxembourgeoise des Employés de Banque et Assurance, ALEBA) has confirmed that the ‘golden age’ is over for Luxembourg’s financial institutions, the number of which (146 at the last count) is set to fall in the future, particularly as a result of international consolidation. The German banks – of which there are a total of 42 in the country, the largest contingent of foreign establishments in Luxembourg – are causing the gravest concerns.

According to the Luxembourg Bankers’ Association (Association des Banques et Banquiers Luxembourg, ABBL) and the Luxembourg Central Bank (Banque Centrale du Luxembourg, BCL), the banking sector already lost 770 jobs between the end of September 2008 and the end of September 2009. However, ALEBA insists that 1,500 jobs have in fact been cut, and that the true scale of unemployment has been hidden by temporary social measures. The trade union claims that many victims of redundancy and restructuring programmes are still finishing their final notice period and are therefore not yet included in the statistics. On 30 September 2009, the Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier, CSSF) counted 26,497 jobs in the banking sector.

Future outlook

ALEBA, which nonetheless claims to be optimistic, believes that the speed at which the situation will worsen in the financial services sector also depends on the decisions taken with regard to banking secrecy. The trade union argues that if an automatic system for the exchange of information is adopted instead of the withholding of information at source, which is currently stipulated by the Savings Directive, this would be ‘fatal and catastrophic’, since the job cuts would be even more extensive. At this point, ABBL has called for the negotiations that are currently underway within the European Union to be brought to a swift conclusion. The employer organisation feels that the prolonged uncertainty is harmful to Luxembourg’s reputation and attractiveness.

Worst case scenario

While uncertainty hangs over the future development of Luxembourg’s financial services sector – and in order to emphasise the importance of having a coherent and successful strategy for the promotion and development of the sector, as well as to underline the need to defend Luxembourg’s interests in this context – the Chamber of Commerce (Chambre de Commerce) has performed a theoretical simulation of a worst case scenario (Avis de la Chambre de Commerce: un attentisme dangereux face à une situation alarmante (in French, November 2009)). This simulation shows the effect on a small-sized economy, which is largely open to external forces and dependent on the international financial sector, of a serious shock to the sector.

In this worst case scenario, it is assumed that the economic weight of the financial services sector will decrease to the level it has reached in Belgium, another small and open economy of the eurozone. This simulation is static, and hence cannot claim to be methodologically exhaustive. Nevertheless, the Chamber of Commerce believes that its conclusion should prompt serious reflection: if the scenario became reality according to the assumptions used, national gross domestic product (GDP) would fall by 33.7%, employment by 15.2% and tax revenue by 25.3% in comparison with 2008.

Pre-emptive measures needed for employees in sector

The Confederation of Independent Trade Unions (Onofhägege Gewerkschaftsbond Lëtzebuerg, OGBL) has asked for a meeting with the Minister for Labour and Employment, Nicolas Schmit, to determine his approach and proposals for countering trends in this important sector of the Luxembourg economy.

Minister Schmit plans to take more pre-emptive action, before employees are registered as unemployed. The idea is that all employees – both residents and cross-border workers – who are affected by a redundancy, restructuring programme or individual redundancy, should receive guidance and support. The approach which the minister plans to take, in collaboration with the country’s Employment Administration (Administration de l’Emploi, ADEM), employer organisations and trade unions, will consist of three phases of support: performing a skills diagnosis; orienting or reorienting the employee towards a new job by means of appropriate and recognised training; and reintegrating those concerned into working life.

The delegation from OGBL has welcomed this new proactive approach proposed by the Ministry of Labour and ADEM. However, the trade union highlights the need to reinforce the financial services sector unit at ADEM. It has emphasised the importance and usefulness of involving the trade unions in the approach proposed by the minister, particularly with regard to employees affected by a redundancy programme. On the question of training, OGBL recommends that a cooperative scheme be set up between the actors concerned: the Chamber of Employees (Chambre des Salariés Luxembourg, CSL), the Chamber of Commerce and the Luxembourg Institute for Training in Banking (Institut de Formation Bancaire Luxembourg, IFBL), as well as the professional employer federations. This collaboration would be particularly beneficial for cases where employees need to be directed into a different sector of the economy.

Odette Wlodarski, Prevent