Brexit Spoils

Luxembourg Plays the Financial Card

Luxembourg automatic exchange of bank data
Banging the drum for his country: Luxembourg Finance Minister Pierre Gramegna. Source: DPA

A contender to lure the European Banking Authority from London to the mainland has hinted his country would consider legal action to get its way. The Duchy of Luxembourg, a major financial center with low corporate tax rates, says it has a legal right to have the EU’s financial institutions located on its territory.

“Apart from the fact that we are providing the building rent-free, we have another ace up our sleeves,” Luxembourg’s Finance Minister Pierre Gramegna told Handelsblatt. “The Brussels Treaty of 1965 stipulated that EU institutions dealing with financial issues should be located in Luxembourg.” The European Commission declined to comment whether the treaty was binding in this regard.

Asked if his government would sue for this right, the finance minister said: “We will follow the debate. At the time, however, members of the [European] Community had a long debate in order to arrive at a solution. We cannot pretend that this decision does not exist!”

With his statement, Mr. Gramegna is seeking a direct confrontation with other capitals aiming to host the EU’s banking watchdog. The EBA was founded in 2011 in London, but as an EU agency it will need to move to one of the bloc’s other member countries after Brexit.

“We have another ace up our sleeves.”

Pierre Gramegna, finance minister of Luxembourg

Despite Mr. Gramegna’s comments, quite a few EU financial institutions are located elsewhere. The Brussels Treaty of 1965, which merged the trading bloc’s three main organizational bodies into one, specified that financial organs of the European Coal and Steel Community (an early predecessor to the EU) would have their seat in the Grand Duchy. However, a 1997 update of the Brussels Treaty stated that the ECB would be sited in Frankfurt, the German financial hub.

A number of cities, including Frankfurt, Paris and Dublin, are vying to host the authority which has to leave London because of Brexit. EU leaders are expected to decide on the location at their summit in December. Frankfurt, Germany’s financial capital, is a prime candidate to become the EBA’s new seat, because – it argues – it is already home to the European Central Bank and the European Insurance and Occupational Pensions Authority, or EIOPA. Paris, meanwhile, is home to the European Securities and Markets Authority, or ESMA.

Michael Brächer is a financial editor for Handelsblatt in Frankfurt. Jeremy Gray is an editor for Handelsblatt Global in Berlin. To contact the authors: braecher@handelsblatt.com, j.gray@vhb.de.

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