Luxembourg Agrees to Lift Bank Secrecy

Luxembourg has agreed to automatically inform other European Union (EU) countries about interest earned by their residents in the country beginning from 1 January 2015.

The government’s agreement will end decades of bank secrecy, which have helped the country establish what has become one of Europe’s biggest financial centres in Europe and made its citizens the region’s wealthiest in terms of per capita income. Luxembourg’s banking industry is around 22 times the size of its economy and has deposits equivalent to 10 times its gross domestic product (GDP). The 141 banks in the country generate 36% of GDP.

Luxembourg prime minister Jean-Claude Juncker said that his government’s decision was driven mostly by pressure from the US, with which the Grand Duchy is negotiating a fiscal agreement. He told parliament that the US had taken a radical position by making an automatic information exchange a precondition for financial relations.

“This doesn’t happen under European pressure, but an international financial centre cannot cut itself off from the US market,” he said. “And we cannot deny the Europeans what we have to give the Americans in bilateral agreements.” However, while the new measure will require banks to adapt, Juncker stressed that it will not spell “the end for the financial centre Luxembourg”.

Nonetheless, it will bring Luxembourg in line with other EU countries except for Austria in sharing information within the European Union about bank depositors in its territory. Despite Juncker’s insistence that he was not “caving in to German pressure”, Luxembourg’s faced lobbying for the change from Germany and the European Commission, bolstered by the case of former French budget minister Jerome Cahuzac, who was placed under investigation for fraud after admitting lying about having a Swiss bank account.

The decision adds to pressure on Austria to now follow suit. Austrian chancellor Werner Faymann has indicated that he may also be willing to compromise on banking secrecy, but faces political resistance domestically.

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