Interview with Lex Delles in the Luxembourg Times

"We need our economy to grow"

Interview: Cordula Schnuer (Luxembourg Times)

Luxembourg Times: As we speak, you've been in office for around four months. In addition to SMEs and tourism, you now also oversee the economy and energy portfolios. What is your personal verdict of this transition?

Lex Delles: I think it was the right decision to move energy over into economy. Energy is a matter of Luxembourg as a business location. Developing sustainable energies is an important element. On the other hand, small and medium-sized enterprises are a matter of the heart for me. I worked on this for the last five years. Tourism, too. There are a lot of things that are linked and I think it will be important in future to bring them closer together. Companies need to be sustainable — from the small ones to the very big ones, across different sectors. The ministry is so diverse — it includes cybersecurity, data, AI, industrial policy. Industry is a tradition in Luxembourg but also the future. That has to be linked to energy. It’s been a very interesting four months.

Luxembourg Times: It wasn't an easy start — the pandemic, war. One crisis follows another. Luxembourg last year slid into a recession. Inflation was higher than in the eurozone in the last couple of months. When do these problems stop being cyclical and become structural?

Lex Delles: When it comes to inflation, last year we had lower inflation than the eurozone. That means the measures taken by the last government were right and we would have otherwise had much higher inflation. With the Tripartite agreements, I'm glad that we were able to protect Luxembourg. On the other hand, of course, high interest rates are poison for the economy. They stop companies from investing, stop people from spending. It’s a means to combat inflation but you have to square the circle. That means keeping investments high through state subsidies to make companies future-proof and prevent them from falling behind. We have to use all the leeway given by the EU. The first thing we said was to link different types of aid. We talk a lot about the twin digital and green transitions. It goes hand in hand but we have to help companies where they need it. We don't have to tell big corporations that they need to digitalise. They know. But the backbone of our economy are SMEs and it’s a completely different approach there. A company that doesn't digitalise today won't exist tomorrow, won't grow. And this government absolutely believes that we need our economy to grow. Nobody has been able to explain to me how we should keep up our social system without growth. It’s a question about the kind of growth we want. We want sustainable growth, and that means social growth and environmentally friendly growth. We are in a crisis. We see it in the construction sector — construction materials are more expensive, purchasing power has decreased. We've taken actions to help companies. But I don't think it’s a structural problem rather than a cyclical one caused by inflation and interest rates.

Luxembourg Times: Speaking of construction, there are news of bankruptcies and closures almost every week. But not just in that sector. Reasons range from staffing shortages, lack of customers, high costs. The government declared parts of the construction sector in crisis but is that crisis more widespread?

Lex Delles: We are emerging from several years where we had very low numbers of bankruptcies because of measures taken during the Covid-19 pandemic. There is a certain catching-up effect. But we're also seeing bankruptcies mainly in two sectors — construction and personal care. We already discussed construction. When it comes to personal care, its one of the first things that customers will save on in the current climate. Strengthening entrepreneurship is one of the core missions of the economy ministry and we've put a number of measures in place. We need entrepreneurs in Luxembourg. We've created support for first-time founders, adopted the concept of the second chance. There always have been bankruptcies but we must stop stigmatising them.

Luxembourg Times: Can the government save every business? And should it even?

Lex Delles: Should it? No, definitely not. Can it? Also, definitely not. An economy is a competitive market. There will always be companies that don't work for whatever reason. Thats normal. It’s up to the state to create an economic fabric giving entrepreneurs the best possible opportunities.

Luxembourg Times: Inflation, interest rates - all of Europe is grappling with these problems. But there are also homemade issues, such as banks refusing to open accounts for businesses. Where do you see the biggest pain points?

Lex Delles: We spoke about bank accounts during the coalition talks and the finance minister is in talks with [banking association] ABBL and [financial centre regulator] CSSF to solve this. It’s a real problem. There are even companies who have an account and are being asked to close it. On the other hand, administrative simplification is very important. When we talk about productivity, growth and competitiveness of companies, the least number of hours possible should be spent on admin. Cutting red tape is one of the priorities. There are different avenues. Firstly, the once-only principle, so you only have to submit your paperwork once. Secondly, silence means agreement. For example, if you apply for a first-time founders subsidy and you don't hear back within a month, its been accepted. If you want to launch a project as an entrepreneur you cannot wait for a year for a decision. Everyone is talking about administrative simplification, its a bit of a mirage. But I take responsibility here at the ministry to review our procedures together with the Chamber of Commerce, the Chamber of Skilled Trades and Crafts, different federations and also with companies themselves. We're trying to make it as easy as possible. That also includes automatic exchange [of information], which must be permitted, because sometimes the state has data in different places but we cannot access it.

Luxembourg Times: A pain point raised often by the Chamber of Commerce and the UEL is high payroll costs and the indexation of salaries. Why is it such a taboo for politicians to tackle the index?

Lex Delles: Personally, I'm convinced that the index is a guarantor of social peace. Let’s look at Germany right now, where Lufthansa is striking, the Deutsche Balm is striking because of wage negotiations. But I also know it’s difficult for businesses. Inflation means higher costs, means higher wages. On the other hand, businesses are happy that purchasing power is upheld. It’s a bit of a chicken and egg question. If people didn't receive an index, had less money in their purses and would spend less, then businesses would also have less turnover. The important thing is predictability. We don't talk about the index this much when it is paid once a year or maybe once every two years. It’s when its abrupt, not foreseeable, several times in short succession. That is a problem for the economy and if that happens again, we'll meet in the framework of the Tripartite and talk to the different players to find solutions.

Luxembourg Times: Indexation is one thing but generally speaking, Luxembourg has the highest minimum wage in the EU. The cost of living is also high, but for start-ups or small businesses wanting to grow it’s a big challenge. Do you consider this a disadvantage for Luxembourg as a business location?

Lex Delles: The start-up location Luxembourg is one of the priorities in our coalition agreement, to push that forward. We have different initiatives, an array of subsidies for founders. We do have a problem with talent attraction. It’s about creating the right framework. For start-ups, for example, we could build on employee share schemes. It’s not just about attracting talents but also about keeping them here and developing them. When we're talking about talent attraction, we're also talking about the housing market, about traffic. For a foreigner, what do you think makes Luxembourg attractive still? We have a favourable social system. We are an open-minded country. Traffic is a problem, but let’s also compare it to other places. If you work near the Eiffel Tower in Paris, you also don't walk to the office in 10 minutes. Work is being done on the fast tram, train connections and that infrastructure is important. Public transport is free. Housing is a weak point. We have foreseen high investments in affordable housing, which will be an important point to keeping people here, too.

Luxembourg Times: I wanted to get back to the subsidies you mentioned. How do you ensure that money goes to a company that is viable, that you don't artificially keep start-ups alive that have no future?

Lex Delles: That brings us to the question of what is a start-up. Three people working for a tech start-up to develop a programme, that’s a start-up. But when three people want to launch a skilled trades business, it’s not a start-up in the traditional sense, but it’s a business that is trying to launch just the same. Let’s take the tech start-up definition. For programmes like Fit 4 Start, an analysis is done of all the applicants who intend to develop different projects. You never have a guarantee. Not every start-up will go to scale-up and become a big business. That’s clear. But we need an ecosystem for innovation, and its one pillar of our economic policy to drive innovation. We need to see this as a whole. You cannot just break off a piece and ask: what value does this particular start-up have? What do they do? It’s a system. We need start-ups to have more research and development here. We need research to have innovative start-ups.

Luxembourg Times: Speaking of the start-up ecosystem. Is Luxembourg a start-up nation already or are we still on our way there?

Lex Delles: Honestly, I think we're still on our way there. We have to adapt, and we plan to do this, but we're on the right track.

Luxembourg Times: Looking back at the bankruptcies, more than half of businesses that folded last year were small companies with up to nine employees and more than half of them were more than five years old, crossing that threshold after the founding years into being established. What does it take to help them survive?

Lex Delles: We're back to the question of distinguishing between a tech start-up scaling up and another business, like a retailer. Its true that bankruptcies are higher for companies older than five years. In part, that has to do with entrepreneurs not finding people who want to take over their business, for example, when they retire. We're working with the Chamber of Commerce and the Chamber of Skilled Trades and Crafts to facilitate this business transfer but also work with companies in preparing for this process. We also simply don't reach some companies with our programmes. If you're talking about a micro-enterprise with a few employees — these entrepreneurs have their nose on the grindstone in the day-to-day so much they don't have time to step back and think about the future. That’s where we have to come in. Not with a consultant that this person has to sit down with for weeks for an audit — they don't have time for this. That’s why we have the three SME packages — sustainability, digital and service. A small business with no basic IT tools doesn't need a comprehensive 360-analysis. They need someone to come in, set up a computer with the right software, get things going, provide training... and then you can look what else you could do to work more efficiently. But it has to be on the ground, concrete, face-to-face.

Luxembourg Times: A fair amount of these packages were developed by the last government. To what extent are we in a logic of continuity versus a new momentum with a new coalition?

Lex Delles: It’s important to continue the projects that work, and to evaluate them. For the SME programme, for example, we will expand this to the green transition. A business that isn't vigilant in the energy transition and questions of sustainability today will run into problems in future. It’s the same as what we've been saying about the digital transition. We have clear emissions targets for 2030 and have to keep supporting companies. We will submit a draft law to parliament in the coming weeks for new state aid. We're working with the House of Sustainability to expand these programmes. It’s an ongoing process to move forward together with the companies.

Luxembourg Times: Outside of specific measures though, when this government took office, it was perceived as being more business-friendly by the community. Do you share this view?

Lex Delles: This government is ambitious about the economy and we're working on implementing this. We haven't even talked about economic or industrial activity zones. We need land for businesses and have launched pilot projects to add surface area as part of development plans. We need competitive, productive companies to be able to afford our social system. We have energy and climate goals that we have to meet. That also means looking at what’s happening abroad and how can we bring this to Luxembourg and make it work here? That includes Luxinnovation, research and development. I'd say we do have a different view on things. We're doing everything to develop our economy. But it wouldn't be fair to say that the last government didn't do anything.

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