Listen to our podcast on post-war reconstruction and the birth of the European economy, presented by Belgian business columnist Salma Haouach and enhanced by the views of Luc Rodesch, member of the Executive Committee and Head of Private Banking.
Welcome to Résonance, the Banque de Luxembourg podcast (in French) that takes a look at the major events of the past 100 years and shares our insights into how they have impacted modern society. How can these historic milestones prepare us for the financial challenges of the future?
This is part of a series of six podcasts presenting a positive analysis of the major changes born of past crises.
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It was the period of prosperity within Europe at that time that facilitated the growth of Luxembourg’s economy and its financial market.Luc Rodesch, Head of Private Banking
After the Second World War, Christian Dior made headlines with his ‘New Look’ collection. In 1947, like all the great artists, he declared a period of reconstruction and decadence. Post-war trauma gave way to a sense of exuberance and endless possibility! That same year, at Harvard University, General George Marshall set forth his programme for European recovery, commonly known as the Marshall Plan. Altruism and self-interest went hand-in-hand in his proposal. The idea was to send Europe millions of dollars accumulated by the US during the war to help Europeans restart their economy... and potentially buy more consumer goods – from America, of course.
The Marshall Plan set the framework for Europe’s thirty-year post-war boom (known in France as Les Trente Glorieuses). In the eyes of many, the plan had saved Europe, although historians are more dubious, as national stimulus measures were already in place at the time. Nevertheless, more than 70 years after it was launched, the Marshall Plan has become a template for economic expansion.
Many economists are today floating the idea of a massive stimulus to reinvigorate the economy in the wake of the COVID-19 pandemic.
The post-war years also saw the emergence of numerous international bodies designed to plan, legislate and arbitrate between the world’s economies. The International Bank for Reconstruction and Development, founded in 1944, would soon become the World Bank. It paved the way for other banks and financial institutions to build their reputations in the new era of peace.
It was a time of growth, with the reconstruction of Europe and Japan topping the list of priorities. The IMF and the Bretton Woods Agreement also came into existence: everything was pointing in the direction of globalisation and the golden age of capitalism. Most importantly, the prevailing message in Europe was: Never again! It’s time to unite!
Luxembourg was an early supporter of the European project and was naturally one of the founding countries.Luc Rodesch, Head of Private Banking
Economic growth and the establishment of the welfare state led to improvements in housing, education, healthcare and social services. In Western Europe, government programmes supported the rebuilding of the private sector. In communist countries, centrally planned economies, led by the state, controlled all national resources and interfered freely with citizens’ everyday lives. The differences between market and state-controlled economies were obvious. Yet they shared a common goal, inspired by the Keynesian doctrine: GDP growth driven by investment and consumption. Keynes believed in the ‘spend more!’ mantra and favoured cycles of expansion and stagnation over the preceding boom-and-bust pattern. Creating wealth was the order of the day.
As significant wealth accumulated, new patterns emerged: a consumer society on one hand and saving and investment on the other.
How would this affect Luxembourg and the European integration project? We hear from Luc Rodesch, Head of Private Banking at Banque de Luxembourg.
“The investments made in the 1950s signalled the beginning of the European project.
On 9 May 1950, Luxembourger Robert Schuman – who was French foreign minister at the time – made his speech proposing the integration of Europe’s steel and coal markets, an initiative now recognised as the first step towards the European Union. The European Coal and Steel Community was created two years later, and the Treaty of Rome was signed in 1957. Luxembourg was an early supporter of the European project and was naturally one of the founding countries. This was for two reasons, both relating to the country’s size.
As a small country bordered by the two European superpowers, Germany and France, Luxembourg was deeply scarred by the two World Wars, and particularly by two German occupations. The European project offered the best way to guarantee peace and preserve Luxembourg’s independence.
Furthermore, the country’s small domestic market meant that it would always depend on international and cross-border trade, and it was the period of prosperity within Europe at that time that facilitated the growth of Luxembourg’s economy and its financial market.
Considerable wealth was created in that era and European entrepreneurs – who bore their own scars from the Second World War – needed stability. They were looking for an environment that was politically, economically and socially stable in which to secure some of their assets, ideally through contacts who spoke their language. Luxembourg offered, and would continue to offer, exactly what they needed.
Luxembourg’s multilingualism and multicultural outlook, which epitomise European values, and above all its remarkable stability, are more important than ever and are our leading assets in an increasingly uncertain world.”
Many investors will continue to be attracted to Luxembourg and secure our market’s reputation as a safe and reliable haven. This has particular resonance in these troubled times. It brings to mind the duration theory posited by French philosopher Henri Bergson, which rejects the ‘instantaneous’ perception of time that seems to prevail nevertheless.
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