AMCHAM: Dear Ms Backes, please introduce yourself to our international constituency of members, partners and friends. Tell us what you want to share about your career development and background.
Ms Backes: Born in Japan to Luxembourgish parents, I spent a good part of my childhood years in my birthplace Kobe, where I graduated from the Canadian Academy international high school. I then embarked on university studies in the UK, obtaining a bachelor’s degree in international relations from the London School of Economics and Political Science, followed by a master’s degree in Japanese studies at the School of Oriental and African Studies. I complemented these studies with a second master´s degree from the College of Europe in Bruges.
I started my professional career in 1994 at the Ministry of Foreign Affairs, holding various positions abroad, including at the Permanent Representation of Luxembourg to the United Nations in New York and the Permanent Representation of Luxembourg to the European Union in Brussels. I greatly enjoyed all the posts in which I served my country, and one of the personal highlights for me was returning to Japan in 2006 as the deputy head of mission at the Luxembourg Embassy in Tokyo.
In 2010, I took up the position as the diplomatic advisor and Sherpa to then Prime Minister Jean-Claude Juncker. I had the privilege to continue in this position for another couple of years under the current Prime Minister Xavier Bettel. I greatly enjoyed this “behind the scenes” job, which was challenging but very exciting. From 2016 to 2020, I had the honor to represent the European Commission in Luxembourg, the European dimension of politics being very much in my DNA. Before being nominated Minister of Finance, I served as marshal of the Grand Ducal Court.
How has your upbringing in Japan influenced your values, your perspective on how to live your life and what is important to you?
I have a deep appreciation for the Japanese culture and general traits, such as a sense of collective responsibility, the preference to communicate with restraint, and respect for others. Growing up in the land of the rising sun, there were few Luxembourgers at the time, and the Japanese were always asking questions about the Grand Duchy. I feel that as a little girl, I was already a kind of “mini ambassador” for my country. Growing up in Japan has certainly also influenced my culinary preferences.
When you are exposed to different cultures, you naturally have the opportunity to reflect on your role in society from different perspectives. How this plays out in one’s own life afterwards certainly depends on many external factors. I am someone who needs to be close to family and friends, but on the professional side, it is also important to earn the trust placed in me through performance and hard work. I have a strong sense of responsibility towards the community I live and work in, which I believe has been partly instilled in me through the international environment I was brought up in, as well as by my many travels.
What mandate do you have from the Prime Minister, and what objectives to accomplish in your new role as Minister of Finance?
As Minister of Finance, ensuring sound public finances is one of my key priorities. This is essential to prepare our country to meet current and future challenges like climate change and the digital transition. Sound government finances furthermore provide the basis for the government’s ambitious investment policy, which is conducive to qualitative growth and wealth creation. This benefits us all, and it helps safeguard the Triple-A – an important guarantor of our attractiveness.
This is all the more important as we have entered a period of uncertainty triggered by the war in Ukraine. It is not a development I could have foreseen when I took up office, but it is a reality that this government and the whole country now have to face up to, together with our European partners.
What are the three biggest challenges (or more) do you see for the financial future of Luxembourg now as we come out of the Covid crisis, and what approaches are you taking to address those challenges.
On the economic front, Luxembourg has weathered the pandemic well thanks to the decisive policy measures taken to support households and the economy. But we are now faced with a new challenge: the fallout from the war in Ukraine. The direct impact on our financial centre is limited, given that the exposure to Russian assets and clients of banks and the fund industry in Luxembourg is negligible. However, this war and the necessary response to this aggression via heavy sanctions will have economic costs for the European as well as the global economy. It leads to higher energy prices, stokes inflation, and likely impacts financial markets.
I’m pleased that we reached an agreement following the lengthy ‘tripartite’ negotiations on a support package to respond to this new crisis at the end of March. The “Solidaritéitspak” – solidarity package – has a triple aim: Help to ensure employment, help to preserve purchasing power, and the package will offer the greatest possible predictability to companies. I believe that it is important to give a signal, also at the international level, that the government acts decisively in such circumstances.
The ‘Pak’ includes measures worth around 830 million euros, which will benefit both citizens and companies. Furthermore, we will put a guarantee scheme for bank loans within the limit of an aggregate budget of €500m to support companies affected by the consequences of this new crisis.
Furthermore, our response is fully in line with the recommendations of international organizations such as the IMF and the OECD, which have stressed that the measures currently deployed by countries must be targeted and time-limited.
It is currently impossible to foresee how the situation will evolve, and our economies will be impacted. We know neither the direction nor the duration of this crisis. We have to continue to monitor the situation closely.
More generally, and to answer the second part of your question, I would nevertheless like to highlight two challenges that were already a priority for this government and that the pandemic has put into sharp focus: digitalization and sustainability. Both are, of course, also opportunities, including for our financial centre. Luxembourg is today a leading international hub for sustainable finance, accounting for more than 40% of ESG assets in European funds and the global centre for listing sustainable securities with the Luxembourg Green Exchange. The government has put in place several initiatives to support the further development of sustainable finance in Luxembourg, from the Sustainable Finance Initiative to a climate finance platform with the EIB and an accelerator for international climate funds. We are currently working on new projects to help Luxembourg consolidate and further develop its role as a pioneer in sustainable finance.
With the Luxembourg House of Financial Technologies, which was set up by my predecessor, we also have a powerful tool to develop the financial technology ecosystem and support the financial centre in its digital transformation. The LHoFT will turn five years this year! We are currently working with the LHoFT team to take this important initiative to the next level. In February, I signed a partnership with the University of Luxembourg to establish a Finnovation hub at the SnT with the objective to help the financial sector via dedicated research capabilities, to address key challenges around digitalization and leverage new technologies from AI and federated learning to distributed ledger technology.
Finally, Luxembourg has adapted well to a new international tax environment marked by increased transparency and new tools to combat corporate tax avoidance. We are now entering a new phase with the OECD two-pillar reform, which Luxembourg fully supports. Of course, we need to work on maintaining Luxembourg’s competiveness, with taxation being only one element that needs to be seen in a larger context.
What external risks does the international business community of Luxembourg face as the result of the many tax harmonization initiatives? What is your Ministry doing to deal with those challenges?
The first thing to say is that a level playing field of rules, what you refer to as tax harmonization, goes a long way to help address some of the risks. Take the minimum effective tax rate of 15% under the new OECD reform: in the future, it will make little sense for countries to go below that rate. So, Luxembourg needs to make sure that it remains an attractive destination for international investors in the context of a new tax landscape that will be implemented by 137 countries representing more than 90% of global GDP.
The reality today is that international taxation, and specifically, the EU tax framework, has become increasingly harmonized over the past decade. Updating and modernizing international taxation has become an inevitability and a necessity. The international tax system was not designed to address globalization, let alone digitalization.
On the one hand, that leaves less room for maneuver for countries to design national tax measures, and on the other hand, taxation is becoming less of a factor of competitiveness. The OECD reform aims to provide coherent and standardized sets of rules.
Luxembourg’s other advantages will thus be an increasingly important differentiating factor: Luxembourg is a stable, triple-A rated country with an open and diversified economy focused on services and high value-added industry. It is also a leading international financial center. Multinational companies from all over the world benefit from the country’s expertise in the financial sector to centralize their cross-border financial activities.
As Finance Minister, I will, of course, resolutely defend our national interests in European and international fora. It is important that new rules also take into account the realities of investment hubs such as Luxembourg, which play a key role in a globalized economy. The carve-out of financial services under the first Pillar of the OECD reform is a case in point, and something, which Luxembourg has insisted on since the beginning of discussions. Similarly, Luxembourg will defend rules that are pragmatic and take into account economic realities in the context of upcoming negotiations on the so-called Unshell directive. We need to avoid making the EU market as a whole less attractive, as this would only benefit third countries.
While it is true that the time of sovereign niches is over, be it on the tax or regulatory front, Luxembourg is today competing with its competency niches. And the cross-border expertise of our financial centre remains our strongest competency niche, which I am committed to help further develop in these challenging times.
Do you feel Luxembourg is fairly treated by the media in our neighboring countries, or are we still unfairly forced to defend ourselves against global tax avoidance charges originating while Mr Junker was Prime Minister?.
I think that this image of Luxembourg you are referring to and with which we are still confronted with aboard from time to time – and at home, to be fair – has not caught up with reality. Luxembourg is fully in line with and has implemented all international and EU rules and standards, be it with regards to tax transparency or the fight against tax avoidance. But it takes years to change an image. And I will also do my part to make that happen.
For a country whose main economic sector is financial services, this occasionally negative image is compounded by a broader lack of understanding and even mistrust of the financial sector, especially in Europe. People tend to see the financial sector as something that is inherently removed from the “real” economy: however, the financial sector is not only an integral part of the real economy, it is its lifeblood. It is the means by which businesses finance themselves and expand their activities.
Collectively, we thus need to continue to explain the role of Luxembourg’s financial centre and show through our actions that the image that some have of Luxembourg is undeserved. But this is not solely the government’s responsibility; it is also that of the companies that operate here. Our reputation is a shared responsibility.
You have surprised some people by giving up your potential long term and very prestigious position as the marshal of the Grand-Ducal Court to become Minister of Finance in a government that is two years away from national elections. Can you kindly share with our readers your motivation to accept this challenge?
The offer to join the government came as a surprise to me. It is, of course, a great honor for me to take up such an important office, and it is a challenge! I accepted to become Finance Minister with the determination to continue serving my country and its people. As in all my previous roles, I am taking on a completely new challenge with the commitment to give my best and deliver on the trust placed in me.
You have obviously been very successful in developing your career. Please share your best career development advice with aspiring young men and women.
While it may sound banal, I think it is important to study and pursue a career in what you enjoy because it is what you will be good at. I have always enjoyed my work, which has made it easier not to count the hours. To young women, I would like to give the message that you should believe in yourself and your capabilities. Women tend to doubt and question themselves more than men, which can be a barrier when it comes to their readiness to accept a new challenge or career opportunities. The right answer may just be to go for it!
Likewise, please explain your work-life balancing strategy, which has allowed you to balance work and family responsibilities.
I note with interest that this is the kind of question that one tends to ask women, but rarely men. While I must admit that my work-life balance is suffering a severe downturn at the moment (she smiles), fundamentally, the answer lies in good organization and a good partnership at home, with equal burden-sharing. Time for the family and time for oneself is necessary for a healthy and balanced life.
Thank you, Ms Backes, for this interview and for your service to the country of Luxembourg.
