Luxembourg, one of the wealthiest countries the world, is also one of Europe’s smallest nations. Yet its former prime minister Jean-Claude Juncker also occupies one of Europe’s most senior positions as president of the European Union’s European Commission. There are few similarities between Luxembourg and Israel, but its finance minister, Pierre Gramegna, visited Israel for the first time last month to get to know the country and to forge connections between Israel and Luxembourg.
What would someone from Luxembourg, which is known for its financial services for the world’s wealthy and until recently was also a popular tax haven, be looking for in Israel? The answer, not surprisingly, has to do with Israel’s reputation as the start-up nation. Luxembourg is particularly interested in Israeli financial technology and cybersecurity startups.
The country’s finance minister met with Science and Technology Minister Ofir Akunis and the governor of the Bank of Israel, Amir Yaron, but most of his visit was dedicated to the fintech industry. He met with representatives of the non-profit group Start-Up Nation Central and from the Tel Aviv-based SOSA innovation center. The primary goal of the visit was to connect Luxembourg, with its financial service expertise, with Israeli know-how in the field of financial technology.
Luxembourg’s financial industry has four major pillars, Gramegna explained: traditional banking (primarily private banking, in a country with more than 140 banks); investment funds with $5 trillion under management in the country; insurance and reinsurance; and financial technology. And a few years ago, Luxembourg launched its own accelerator program, the finance minister noted.
“It’s been extremely successful,” he added. “We have more than 50 companies.”
Luxembourg’s financial might is as a financial gateway to Europe – not just for bankers, but also for technology professionals, he said. “We think that both our countries are quite complementary.” Israel has the technology, while Luxembourg has the big clients. ”We’re not so strong on the tech part of fintech. You are very strong on the tech part of fintech, so we think that we can work together very well. This is why we’ve come here.”
The first question in our interview – whether the threat of a boycott by supporters of the BDS movement worries Luxembourg – catches Gramegna by surprise.
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“BDS? What’s that?” he asks. He consults with his assistant, and they shrug their shoulders. “We’re pleased to have Israeli investments in Luxembourg and Europe,” Gramegna replies.
As one of the wealthiest countries in the world, for the most part Luxembourg attracts people who are leaders in their fields and who are highly paid in a country with low tax rates. Yet some 200,000 people work in Luxembourg but don’t live there – fully 40% of the country’s work force. That even creates morning and evening traffic jams. Luxembourg exports 85% of its goods and services, Gramegna notes, and 70% of its workers are not citizens (although many are residents).
The country has been governed by a coalition of centrist, left-wing and environmental parties since 2013. The country’s political stability and flexibility on matters such as taxation and regulation, as well as its openness to foreign languages, has helped it become a financial center for multinational corporations. The country also served as a tax haven until 2014, when a massive leak of data dubbed LuxLeaks exposed Luxembourg’s role in tax evasion by some 300 companies.
“It’s good [you] asked me the question,” he says, noting that his government decided to end banking secrecy in 2014. “So we are now totally mainstream. We exchange information with other countries, not only in the EU,” he notes. “If we ever were a tax haven, we certainly are not one anymore.” But Luxembourg, he adds, has retained its power as a financial powerhouse.
“The last five years have proven that we have a lot of know-how. We have a very diversified financial center and foreign players really believe that Luxembourg is part of a well-functioning and efficient financial system,” he says.
Luxembourg’s great advantage is political stability, which has prevailed since World War II, according to Gramegna. Having lost significant territory to its neighbors, there is a national consensus in Luxembourg over the need to protect the country’s interests, he remarks, in what appears to be a hint that his country understands Israel’s own interest in defending itself, and does not intend to judge it over its conflict with the Palestinians.
Asked whether the conflict impinges on his decision to build economic ties with Israel, Gramegna responds: “Every country has its strengths and weaknesses. You are here in an area of the world where there’s a lot of instability, and you try to make the best out of it. In fact, one of the reasons why Israel is so strong in fintech and in cybersecurity is because of this insecure political situation.”