European Political and Economic Issues

Head Table Guests

Sharon Rudy, Vice-President, Spencer Stuart and Director, The Empire Club of Canada; Reverend Kim Beard, Christ Church, Brampton; Tri Nguyen, "A" Average Student, Bloor Collegiate Institute; Fernand L. Lamesch, President and CEO, ARBED Americas Inc., New York, and President, Luxembourg-America Chamber of Commerce, New York; Bob Christie, MPP, Deputy Minister of Finance for the Government of Ontario; Jacques Bilodeau, Canadian Ambassador to the Grand Duchy of Luxembourg; Her Excellency Madame Arlette Conzemius, Ambassador of the Grand Duchy of Luxembourg; Julie Hannaford, Partner, Borden Ladner Gervais LLP and Past President, The Empire Club of Canada; Ray Protti, CEO, Canadian Bankers' Association; His Excellency Henri Grethen, Minister of Economy and Transportation for the Grand Duchy of Luxembourg; and The Hon. Maria Minna, MP, Minister of International Co-operation for the Government of Canada.

Introduction by Bill Laidlaw

I Having just returned from Europe and experienced so much of its history in everything I saw, I am amazed at what has transpired on this great continent.

The progress that has occurred in this part of the world is truly amazing. Our Canadian history is really also European history.

I only recently came to appreciate the important role that Luxembourg has played on the European continent.

Reviewing this country's history since 1963 is like trying to remember the teams that won the Stanley Cup in the last 100 years. Clearly Luxembourg has had a long and illustrious past and is the envy of many European countries. Today I am sure that it is feeling the uncertainties about its personal security and its economic future, just as we do in Canada.

Despite this recent setback Luxembourg and Europe have a promising future and today we are fortunate to have as our guest the Prime Minister of Luxembourg, The Honourable Jean-Claude Juncker.

Prime Minister Juncker is the current Prime Minister of Luxembourg. He is also Minister of State and Minister of Finance.

In 1979 he obtained a Masters Degree in Law and was admitted to the bar in 1980. His political career has been long in the making.

He began a lengthy tenure as President of the Christian Social Youth from 1979-1985 after having joined the Christian Social Party in 1974, and in 1984 he was elected Member of Parliament in the southern district constituency on the Christian Social Party's list.

After the resignation in 1995 of then Prime Minister Jacques Sauter, Juncker was appointed Prime Minister, Minister of State and Minister of Finance by the head of state. He kept this post until the resignation of the government after the legislative elections in June of 1999.

Prime Minister Juncker's ministerial appointments are too numerous to mention. He has been fortunate enough to have, and continue to have, an illustrious political career that has spanned two decades.

He was the Chair of the European Council and in 1997 opened the doors of the European Union to 10 central and eastern European countries including Cyprus.

He also assisted with overcoming some of the many challenges and obstacles in establishing a single European currency--the euro. His presence on the national political scene was increased considerably when on August 7, 1999 he was appointed Prime Minister, Minister of State and Minister of Finance for Luxembourg.

It is with great pleasure that The Empire Club of Canada welcomes to the podium the Prime Minister of the Grand Duchy of Luxembourg--His Excellency Mr. Jean-Claude Juncker.

Jean-Claude Juncker

Ladies and gentlemen, I have been asked to entertain you with a presentation of current European political and economic issues as well as with the position of Luxembourg inside the European Union. And I have been asked to kindly limit my talk to 15 minutes! I intend to do so.

One cannot make a speech these days without referring to the terrible events that shook the United States and indeed the world on September 11. Although we all know that somehow we have to get back to "normal" life, nothing will be quite the same anymore. Many people including myself--have been deeply shaken not only by the attack itself, but also by the fact that it seems that these criminals have been living among us for quite some time before being "activated."

Paradoxically, this nightmare now also has some positive effects. The scope of measures which the international community is embarking upon to fight the plague of terrorism is indeed unprecedented.

Before dwelling upon the measures that the European Union and Luxembourg have taken in the fight against terrorism, I would like to share with you three concerns.

First, we must avoid any equation of terrorism with the Arab and Muslim world. We call upon the Arab and Muslim world to join the international coalition to fight terrorism. The so-called "clash of civilisations" does not take place between Islam and western civilisation, but it takes place inside both civilisations, between those who recognise the values of tolerance and mutual respect and those who propagate hate and destruction.

Secondly, although the response by the United States is absolutely legitimate, European governments--and I know this is the position of the Canadian government

too--want the counterattack to be targeted and embedded into a broad coalition under the auspices of the United Nations.

Thirdly, a thorough analysis of the causes and origins of the phenomenon of terrorism is urgently needed. Poverty certainly breeds terrorism and we all have to make efforts to increase public development aid. Luxembourg has already crossed the recommended threshold of 0.7 per cent of GDP and is moving towards its self-imposed target of 1 per cent of GDP by 2005. But the level of development of a country or region cannot be the sole cause of the emergence of terrorism. Maybe we should question the present world order and strive for a world architecture that is more balanced and more just.

Let me explain now what urgent measures have been taken in Europe. Again, in a difficult and delicate moment, when they have to confront a serious threat, Europeans rediscover the importance of being united and accelerate their integration! We have reaffirmed our commitment towards the creation of a genuine common foreign security and defence policy and deeper integration in the fields of Justice and Home Affairs. We are now working on a common definition of terrorism which will enable us to create a common European arrest warrant: wanted persons can thus be handed over directly from one judicial authority to another.

Furthermore, we will draw up joint lists of terrorist organisations and strengthen co-operation and exchange of information between our secret services. Joint investigation teams will be set up and the European agency for police co-operation "Europol" will form a specialist antiterrorist team. Co-operation with the U.S., Canada and others will be close of course. It also goes without saying that these investigations have to be carried out in the full respect of fundamental freedoms. We must not change the fundamental nature of our societies.

All international conventions on the fight against terrorism have to be implemented as soon as possible. I wholeheartedly support the idea of elaborating a new UN convention which would embody all legal instruments and measures taken within the last years in order to fight terrorism.

Apart from taking more measures to strengthen airtransport security, the sources of financing of terrorist organisations have to be dried up. Luxembourg has signed the UN convention for the suppression of the financing of terrorism. I acknowledge that we are not the first to sign, but we are not the last to sign either. We will have ratified the convention by the end of the year.

Tax havens and off-shore centres are under close scrutiny now. As so often, my country is mistakenly presented on the part of the press as such a haven; and some articles have claimed without evidence that bin Laden and his organisation hold accounts in Luxembourg. Well, Luxembourg is not a tax haven; nor is it an off-shore centre and even less so a haven for criminals! It is true that we still have banking secrecy, but this secrecy is lifted for criminal offences. Obligation to secrecy does not apply in court cases and before judges. Following the events of September 11, all financial institutions have undertaken to screen their clients' accounts again.

Luxembourg's legislation provides for very strict regulations governing access to the financial sector, in particular with regard to the identity and worthiness of shareholders and managers. Banks have to know who their customers are. Identification requirement applies to all transactions that exceed about C$17,800; from January 1 onwards, this threshold will be lowered by 20 per cent. We have some of the tightest laws in the fight against money laundering, not only with regard to drug trafficking but with regard to a wide spectrum of criminal activities such as procuring and illegal arms deals. By law, financial institutions must report to Luxembourg authorities if they have the suspicion and even more so if they have the certainty that money stems from criminal sources. They are not allowed to carry out the financial operation requested by their client.

During the debate on the European directive on money-laundering, Luxembourg insisted that lawyers should be put on the list of those professionals who have to report to authorities. Indeed, if a banker has to report despite banking secrecy, why should lawyers be treated differently?

But it would be naïve to think that a tougher fight against money-laundering will be enough. Indeed, terrorists and their organisations also hold what I would call normal accounts. So, exchange of information is a must. In the framework of the EU, Luxembourg has proposed to strengthen co-operation between financial intelligence units, which are those entities that already exchange information in the context of investigations against money-laundering. We could thus act pre-emptively against terrorism.

What about the economic consequences of the events of September 11? Increased uncertainty is never good for economic prospects! The immediate impact on the U.S. is substantial and growth rates will probably be negative in the third and fourth quarter of this year. In Europe, at least in the euro area, recession will be avoided as fundamentals are sound and as tax cuts and falling inflation are likely to stimulate consumption. Vigilance is needed however and the European Central Bank will have to work closely with the U.S. Federal Reserve Bank, the Canadian Central Bank and others. Some sectors are severely touched, especially airline companies and the tourist industry. Insurance companies have just decided not to suffer and declared that they will cease to compensate for damages following acts of war and terrorism. Quite scandalous, I must say. The Luxembourg government as others have decided to provide liability cover to airline companies facing insurance problems. The details of this scheme are currently worked out at the EU level.

In the aftermath of the shock of September 11, we have witnessed how important the achievement of the Economic and Monetary Union (EMU) is. In the absence of the common currency, national currencies would have fallen into complete disarray and some countries would have seen no alternative to devaluation. The euro is a true shield against external turbulence. Already during the recent rise in oil prices as well as in the run-up to EMU, during the Asian crisis notably, we have witnessed this positive shelter effect.

If EMU is such a success, why is the euro weak in comparison to the dollar, you might ask! To be honest: I do not know! In fact, it does not make sense at all. Economic fundamentals are much better in Europe than they are in the U.S. Indeed, there is a strong internal demand in Europe, a highly skilled work force, budgetary discipline, close coordination of economic policies, an independent Central Bank as well as a wide range of structural policies aimed at strengthening the internal market and at modernising European economies.

The only explanation I can find is to say that the dollar is benefiting from an unbreakable trust. Americans have a blind belief in their money and are always optimistic that things will get better when they are not good. Europeans on the other hand cannot celebrate when they have achieved something and they nurture this inferiority complex. "It just can't be that the euro is as good as the dollar." On top of this, we still have 12 finance ministers giving all kinds of mutually contradictory statements about the development of the common currency. And if all of us say the same thing, that is that the euro has a high potential to appreciate, we definitely do not sound convincing enough.

Apart from its shelter function against monetary shocks, the euro has many other implications. In my view, the creation of the single currency has been the culmination of the process of European integration that started 50 years ago. The scope of what some European countries have achieved is not yet fully understood, even though citizens will hold euro notes and coins in their hands from January 1.

We in the EU hope that the euro will become the strongest currency in the world next to the U.S. dollar and a global reserve currency. Europeans are very well aware of the fact that advantages go together with responsibilities and obligations. The euro should help create a more balanced international monetary environment with a shared leadership and thus a shared burden.

The euro contributes to the emergence of a truly European identity. EMU should allow Europe to realise its ambition to become an influential and responsible actor on the world stage. The impact of the euro on the world economy will grow larger with each additional country joining the common endeavour. By size and economic weight the current euro zone is comparable to the U.S. It has nearly 300 million inhabitants and accounts for almost 20 per cent of world GDP and 20 per cent of world trade. In due course, the current three "outs" will join. In Sweden, Denmark and the U.K., it is a mere political question. Central and Eastern European countries will follow at a later stage.

EMU is a spur to greater internal dynamism and integration. In the past EMU has nurtured among EU-member states a culture of stability which has never existed before. "Economic Convergence" was the magic concept that made countries fit for EMU. This effort has to be sustained and countries must not yield now to a sort of "convergence fatigue" and relax discipline on economic policies. This is why we have created "peer pressure" among ourselves.

Each year, at union level, broad economic policy guidelines are agreed for the EU as such and for each country taken individually. National governments have to make sure that their national economic policies and decisions are consistent with these guidelines and that they respect the premises of the Stability and Growth Pact which prohibits excessive public deficits and aims at a balanced budget over the medium term. We jointly assess the economic situation, the prospects and devise the policy mix by which to respond. In practice, this is very difficult, believe me!

In my view, it is absolutely necessary for the Euro zone to strengthen the management of its common currency by creating a sort of economic government of Europe. It makes no sense that monetary policy is centralised whereas the conduct of economic policy is only co-ordinated between finance ministers.

Let me finish by a few words on enlargement. This is yet another big project on which the European Union has embarked upon. For me, it is a question of war or peace. Indeed, is there any bigger and nobler ambition than to reconcile and reunify Europe? It is the first time that European unification is attempted by peaceful means, not by force.

Of course, candidates have to make themselves fit for accession and that process is very painful for them. They have to take over all our rules and regulations, what we call in EU-speak the "acquis communautaire."

The enlargement process was launched at the European Council in Luxembourg in December 1997. By now we are negotiating with 12 candidates and the point of no return has been reached. Turkey is the thirteenth candidate but negotiations have not yet started. To give you an idea about the scope of the adventure: The EU will increase its geographical size by 34 per cent, respectively 58 per cent if we add Turkey; population will increase by 28 per cent, respectively 45 per cent. But GDP will increase by a mere 4.5 per cent, respectively 6.6 per cent if Turkey is included. GDP per capita varies from 23 to 68 per cent of the union's average. You need not be an economist to understand the difficulty of the exercise. Enlargement has to be sustainable: countries which become members have to be properly prepared; otherwise we risk implosion of the EU. But, if we stick to the right method, this risk is quite small. Now, what is the right method? Negotiations are conducted on the basis of the following principles: the union is negotiating bilaterally with each individual country; each country is judged according to its own merits; it has to comply with the socalled Copenhagen criteria which are political and economic in nature.

When will this enlargement take place, you may ask. I am in favour of speedy negotiations, but I am not in favour of galloping through enlargement. By the end of 2002, negotiations with the furthest advanced candidates will probably be completed. At a recent summit meeting in Sweden, leaders of the EU expressed the hope that the first new members will be able to take part in the elections for the European Parliament in June 2004. Ten countries so far have pledged themselves to be ready for that time-frame. We shall see.

Now you have to be aware that the enlargement process is not very popular with the current member states. EU governments have a huge responsibility here, as some individuals do not hesitate to make politics with people's anxieties. I refer here of course to xenophobic political parties and movements.

Apart from a minimum of political support, we have to pay attention to the social cost and to the financial burden we ask candidates to bear. In some sectors, such as environment and agriculture, transition periods will probably have to be rather long.

We all know that apart from the current candidates, there are many more countries which are interested in joining the European Union. I am talking about the Balkan countries and countries such as Ukraine, Moldova, the South-Caucasus. They are already knocking on the EU's door. Where do the boundaries of the European Union stop? That is going to be a separate debate.

So, ladies and gentlemen, I am keen on your comments and questions!

The appreciation of the meeting was expressed by The Hon. Maria Minna, MP, Minister of International Co-operation for the Government of Canada Inc.