Jeannot Krecké, Discours à l'occasion du séminaire économique et financier dans le cadre de la visite d'Etat, Portugal

Dear colleague,

Your Excellencies,

Ladies and gentlemen,

Dear guests,

Usually, seminars like the one of today are somewhat predictable. I am supposed to tell you how well Luxembourg is doing, my esteemed colleague will tell us how dynamic Portugal is. In presentations we will highlight the many business opportunities at hand and underline how much we have in common. For the businessmen who are used to this exercise it mostly consists of two hours to sit through, on uncomfortable chairs, the price to pay for hopefully interesting networking opportunities over drinks and food. You know, there is no such thing as a free lunch.

I would like to use the minutes allocated to me in order to stray away from the topic of “Discover Luxembourg�? and draw a broader picture. We are only one week away from the second anniversary of one of the key dates in recent economic history. On 15th September 2008, Lehman Brothers filed for bankruptcy in New York, marking the culminating point of a global credit crisis. It was an earthquake of planetary proportions that shook the financial markets for weeks, a moment where many thought that this would be the end of the market economy as we knew it.

Today, two years later, I look back at those days with mixed emotions. There is a certain kind of satisfaction at work done, particularly in the cases of rescuing Fortis Bank and keeping Dexia afloat. Together, with our Belgian, Dutch and French colleagues, the Luxembourg government managed to take quick and decisive measures, not only injecting money into an interbank credit system that had run dry, but also taking a long-term commitment in order to calm the fears of investors and customers.

Dexia pulled through. Fortis Bank doesn’t exist anymore, but was successfully integrated into another large banking group, with the Luxembourg government still very much involved in terms of governance and shareholding. The bank is profitable again, jobs were saved and the wildfire that had threatened to burn through our entire economy was extinguished. Looking back, I think that those nights were among the most memorable in my life.

Unfortunately, I am less convinced when I look at what happened during the following two years. All governments, Luxembourg included, struggled at the home front to save companies from going under, to build dams that would keep the problems in the global financial systems from flooding into what we came to call the “real economy�?. We had to come to terms with the fact that high-risk mortgages in suburbs of small US cities could trigger a series of events that would lead small and medium-sized European industrial companies to lay off workers.

Who would have thought that the world had become truly flat, that the destinies of the broker on Wall Street, the worker in a textile factory in Guangzhou Province in China and the employee of a German car manufacturer had become invisibly but very tangibly linked? Did the grandmother who opened a savings account for her grandchild think about why a formerly unknown bank was able to offer such a wonderful interest rate only because it gambled with the money, betting on such exotic projects as hotels in the desert or fish farms on the other side of the world? With hindsight we condemn the crazy quest for ever larger profits, but should we not step back and question our own behaviour? Did we not want ever better returns on our savings, did we not want our houses to increase in value way beyond what was reasonable, did we not want to earn always more and yet spend always less on the goods we buy? They say that the trees do not grow into the sky. Yet, we were sitting on the top branches, watching the clouds beneath us and thought that this was all normal.

The shock of autumn 2008 made us wake up. It was like the hangover after a big party. We all vowed never to do this again. And yet, when I look at the markets today and the measures taken at the European and global level, I am not convinced that we are safe. Instead of taking the measures that were initially announced such as regulating, supervising and cautioning, the initiatives were watered down according to the interests of the major players involved. Instead of regulating the so-called casino capitalism, the G8 decided at its London summit to focus on the unconnected issue of banking secrecy, deflecting any attempts to work on the root of the problem.

Spending a problem away is easier than solving it, provided you find a way to fill your wallet again after you had your retail therapy. I am sad to look at the markets today and see that nothing has really changed…

When Greece fell prey to the speculating vultures of the international money-markets, we, the governments of the Eurozone, took weeks of haggling and public debate in order to work out a complex solution to an easy situation: only a resolute and firm position can bring confidence back. Governments need to work with determination on cleaning the situation at home and we, the partners in this historic community of destiny that is our common currency, the Euro, only had to show that we would not waver in our support. With hindsight, one might say that the firm stand of some of the partners looked more like a tap dance.

I hesitate to talk about the measures taken by the Portuguese government in order to address the effects of the global economic and financial crisis, despite the fact that I spoke a number of times at the Ecofin to Fernando Texeira about this issue. It does not become a guest to judge his host. But I have to applaud your principled approach, even if it was painful for the whole population. Governing does not mean only following the easiest path.

I am convinced that the Portuguese population will understand that the measures taken are necessary and that today’s sacrifice means a better deal for their children and grand-children. Maybe their understanding comes from the fact that prosperity came later to Portugal than it came to our region of Europe. Poverty is still a living memory in your country.

The many of your fellow citizens that came to find work in Luxembourg did not leave because of the fun of it, they left due to economic necessity. I remember the Portugal of the1960ies and 1970ies and recognise that you have come a long way since. By the way, I witnessed myself the first movements after the revolution, being one of the few foreigners present in Portugal at that time.

I was born in Luxembourg in 1950, into a generation that for the first ever did not have to live through a war. I belong to a generation that was lived through almost uninterrupted economic growth. In our minds, the belief that it would only go upwards was firmly anchored. The younger generation does currently live a very different moment. The crisis has shown the vulnerabilities of our economic models and the pitfalls of a globalisation. that is not a choice that could be undone, but an immutable fact of life. They start to understand that prosperity cannot be built on a financial game of smoke and mirrors, but needs to be earned on a very competitive marketplace against many other players, hungry to get their piece of cake.

In order for the forthcoming generations of Europe to enjoy our current comfortable standard of living, we need to create solid foundations today. We need to put our public finances on sustainable bases and reduce the public debt that will hold back the future dynamic of growth, even if it means that we all will have to dig deeper into our pockets or get less benefits from the public purse.

We need to invest in education and research, in order to build a human capital that is at the forefront of knowledge – soon to be Europe’s only remaining natural resource. Luxembourg will also have to undergo this painful process and I can tell you that it is no easy sell for a government in a country in which hardship is at most a very distant memory.

Ten years ago, in this very city of Lisbon, the leaders of Europe adopted the famous Lisbon Strategy. It was meant to make the EU "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion�? by 2010. Here we are, September 2010, and I dare to say that we still have a lot of ground to cover.

Maybe we did not all understand what it means to live in a knowledge-based economy. It does not mean that everybody has to be a university graduate. It does not mean that our economies are only going to be based on fancy and clean high-technology activities, ideally neither consuming any energy nor rejecting any pollutants.

It means recognizing that our know-how and our skills are our most valuable assets, more so than any buildings or machinery.

We have seen how easy those can be shifted to more cost-efficient locations. Europe needs to convince by the brains of its people, by their attitude to work, their thirst for quality and their drive for innovation. The Luxembourg government is aware of this vital necessity and is, even in times of budgetary austerity, financing pro-innovation measures, encouraging activities in research and development, extending the footprint of our young university and creating incentives rewarding entrepreneurial investment in bringing their companies beyond what is “state of the art�?, to the forefront of their industry.

We strive to diversify, in the structure of our economy as well as in the geographical diversity of our customers. It is no longer sufficient to count only on your well-established markets because they can go belly-up very fast, as we have seen two years ago. A knowledge-based economy means also knowing where your customers are and where they will be in the future. It means to be open to the world and to be quick to react to new developments.

Luxembourg, in the heart of Europe, has established ties with most emerging markets, establishing bridgeheads in the BRICs, the Middle East and will soon extend its presence in Africa. Portugal can be an ideal partner in this venture. As a natural springboard to Brazil and to Africa, Portugal should be of the highest interest to our internationally active companies. My fellow speakers from Luxembourg will present this imperative as well as areas of cooperation in more detail.

Your Royal Highness,

Your Excellencies,

Ladies and gentlemen,

Dear friends,

Please let me finish by underlining once again the necessity for Europe to concentrate on innovation and entrepreneurship. Deep inside, we all know that we will not be able to compete on the global marketplace if we do not change. If we fall back, we will be superseded by the new economic giants who have been growing in our shadows. Presently, we are in a situation that can be summed up as “innovate or die�?. Unfortunately, this wakeup call comes at a very difficult moment, when many of our companies are still fighting for their survival and governments are burdened by debt. I am confident though that this moment of greatest stress will also be a moment of great opportunity. Europe has a huge potential, born out of its great cultural tradition, its history and the diversity of its people. If we all stand together and stick to our common goals, Europe, its economies, its companies and its people will prevail in the challenges to come.

Thank you.