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The Covid-19 crisis has caused immediate damage in many sectors of the economy and the consequences are likely to be felt for a long time to come. In order to start thinking about the solutions available to local businesses and Luxembourg's core strengths, a preliminary round-table discussion was organised by the magazine Paperjam on 14 January.

Pierre Ahlborn, Administrateur délégué of Banque de Luxembourg was invited to the event and had the opportunity to share his experience and vision of the post-crisis period with other participants on the theme of the resilience and recovery of Luxembourg's economy.

The banking and financial sectors are surely among those that have fared best in this crisis. Why is this?

PIERRE AHLBORN (P.A.) There are two main reasons for the financial sector's resilience. First, the rapid shift to working from home, which has enabled businesses to continue without interruption. And secondly, the value of equity markets. Despite great volatility, equity markets ended the year with correct valuations. Fintechs for example, especially those that are payment platforms, were buoyed by the boom in online trading. Overall, the sector held up well, although some small companies suffered because certain investment and partnership decisions had to be postponed due to the prevailing uncertainties.

The consequences of the crisis are likely to have repercussions on bank balance sheets in 2022. How are they preparing for this?

P. A. Let’s hope that doesn't happen! But there’s certainly a global debate going on about whether there will be a financial crisis after the pandemic as a result of business failures. Since 2008, especially in Northern Europe, bank balance sheets have been healthy and risk control is better. And it is notable that few companies are in difficulty due to the pandemic. They have been supported by governments and accompanied by the banks which have provided them with liquidity. There is a communion of interest, and bankers will do all they can to help companies. But let's not forget that, in order to avoid a financial crisis tomorrow, bankers have critical obligations in terms of risk control. The CSSF (Luxembourg’s Financial Sector Supervisory Commission) and the ECB want to make sure that the banking sector won’t be the problem in the coming years. We have an obligation only to finance companies that have a real chance of survival. Although this has worked well so far, let’s not be under any illusions. In the next four years, companies will encounter difficulties because they have been weakened by the crisis.

 

Let's look to the future. How will the economy recover?

P. A. I've drawn three lessons from this crisis. First, it has accelerated some underlying trends, particularly as regards digitalisation of the economy. Secondly, this crisis has forced us to create new ways of working, especially working from home, which are factors of productivity. And thirdly, I believe that, after this crisis, we will experience a tremendous surge in business productivity, precisely because companies have had to reflect on how they work and how they deliver their services. Perhaps this crisis will trigger the strong burst of productivity that we have long been waiting for.

What has this crisis taught us?

P. A. First of all, this crisis was nobody's fault and has been very unfair on people and businesses. We’ve had to come together. And in our model of society, it falls to government to foster solidarity. We’ve had to take on debt to develop this solidarity. I hope that the efforts to deal with this debt will be fairly distributed. We can also hope that this crisis will be a turning point for the environment, not just for digital. It will take time, but investing in the infrastructures we all need will also be a good way of stimulating investment.

 

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