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Europe > Luxembourg

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Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Detailed Assessment of Observance-Assessment of the CPSS–IOSCO Principles for Financial Market Infrastructures Euroclear Bank
International Monetary Fund. Monetary and Capital Markets Department
Euroclear Bank (EB) is a large and highly interconnected international central securities depository (ICSD) that provides critical services for global financial markets. EB, domiciled in Belgium, issues and provides custody and settlement services for international bonds (i.e., Eurobonds) in its capacity as an ICSD. It shares this role primarily with Clearstream Banking Luxembourg (CBL). EB also settles and holds in custody a wide range of domestic and internationally traded securities. In December 2019, EB was authorized under the Central Securities Depository Regulation (CSDR) of the European Union (EU) to perform so-called core CSD services, as well as non-banking- and banking-type ancillary services. EB is also licensed as a credit institution under the Belgian Banking Act. To facilitate smooth settlement, EB provides uncommitted credit facilities to its participants on an intraday and fully collateralized basis. In 2021, the value of securities held on EB’s books was EUR 17.1 trillion and it had settlement turnover of 147 million transactions with a value of EUR 653 trillion. This makes EB the most active CSD in the world (by settlement turnover), as well as the largest ICSD and third largest CSD in the world (by value of securities held).
Keywords:
resolution plan; EB's service; cyber posture; EB's ability; assessment of EB; EB's book; access implication; Securities; Credit risk; Operational risk; Collateral; Central securities depositories; Global; Europe
Cover Policy Papers
Resilience and Sustainability Trust – 2023 Contribution Agreements with Italy, Luxembourg, Oman, and the United Kingdom
International Monetary Fund. Finance Dept. and International Monetary Fund. Legal Dept.
This paper presents Resilience and Sustainability (RST) contribution agreements finalized with four contributors between April 2023 and September 15, 2023. The concluded agreements provide for contributions in a total amount of about SDR 4.7 billion across the three RST accounts – the loan account, deposit account, and reserve account. The new agreements with four members add critical resources that support the continued smooth operations of the RST.
Keywords:
Resilience and Sustainability Trust (RST); Contribution agreements; Resource adequacy; Funding; Contributions; transparency policy; contribution agreement; deposit account claim; SDR equivalent; reserve account contribution; Loans; SDR interest rate
Cover Policy Papers
Annual Update on SDR Trading Operations
International Monetary Fund. Finance Dept.
This paper provides an update on the status of the SDR trading market and operations. For more than three decades, SDRs have exclusively been exchanged for freely usable currencies in transactions by agreement, primarily through the Voluntary Trading Arrangements (VTAs). Since the last annual update, SDR trading has continued to be dominated by SDR sales, although SDR acquisitions have increased significantly. From September 2022 to August 2023, SDR 17.9 billion were sold through the VTA market, of which SDR 8.9 billion were exchanged by 29 participants into currencies and SDR 8.0 billion were sold by the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST) for liquidity management and to facilitate the investment of SDR contributions. On the purchase side, the volume and number of transactions increased from the previous year as more participants needed to replenish their SDR holdings to cover charges to the IMF, reflecting the rising SDR interest rate. The VTAs continue to have ample capacities to meet the demand for exchange of SDRs into currencies.
Keywords:
SDR trading capacity; SDR sale; SDR department participant; VTA market; IMF-administered trust; SDR trade; Currencies; Liquidity; Trading arrangements; Freely usable currencies; Middle East and Central Asia
Cover IMF Working Papers
Energy Support for Firms in Europe: Best Practice Considerations and Recent Experience
Mr. Anil Ari, Philipp Engler, Gloria Li, Manasa Patnam, and Ms. Laura Valderrama
The surge in energy prices due to Russia’s February 2022 invasion of Ukraine significantly increased costs for European firms, prompting governments to introduce a range of support schemes. Although energy prices had eased by early 2023, uncertainty around prices remains unusually large. Against this backdrop, this paper examines the case for government intervention and identifies best practices with a view to improving the design of existing energy support schemes, facilitating exit from those schemes, and preparing policymakers for a downside scenario in which energy prices flare up again. The paper argues that support should be limited in size, strictly temporary in nature, narrowly targeted, and accompanied by strong safeguards and conditionality, while preserving price signals as much as possible to encourage energy conservation. Finally, the paper reviews recent support schemes introduced by European governments in light of the identified best practice considerations.
Keywords:
Energy prices; energy subsidies; financial support; price caps; energy crisis; Russia’s invasion of Ukraine; energy support scheme; price signal; best practice consideration; Annex II; support scheme; Energy pricing; Energy conservation; Fuel prices; Solvency; Europe
Cover IMF Staff Country Reports
Nordic-Baltic Regional Report: Technical Assistance Report-Nordic-Baltic Technical Assistance Project Financial Flows Analysis, AML/CFT Supervision, and Financial Stability
International Monetary Fund. Legal Dept.
Recent money laundering cases have exposed financial integrity risks from cross-border payments and potential impact on financial stability to the integrated Nordic-Baltic financial sector, attracted international scrutiny of anti-money laundering and combating the financing of terrorism (AML/CFT) supervision throughout the region, and so accelerated the momentum for reform. The purpose of the project is to conduct an analysis of cross-border money laundering (ML) threats and vulnerabilities in the Nordic-Baltic region – encompassing Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, and Sweden (the Nordic-Baltic Constituency or NBC) – and issue a final report containing recommendations for mitigating the potential risks.
Keywords:
TF risk assessment; colleges participation; TF risk; EU Anti-Money Laundering Authority; supervisory cooperation; information Sharin; Anti-money laundering and combating the financing of terrorism (AML/CFT); Virtual currencies; Correspondent banking; Internal controls; Financial sector stability; Baltics; Global
Cover IMF Staff Country Reports
Euro Area Policies: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper highlights quantitative tightening (QT) by the European Central Bank (ECB). It uses evidence from the literature on the impact of central bank bond purchases and sales on bond yields, and the monetary policy stance, to outline a roadmap for reducing the Euro system’s bond holdings. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The paper concludes that the ECB’s short term policy rates should be the main choice for adapting the monetary policy stance to changing circumstances and QT should proceed in a gradual, predictable manner as outlined by the ECB.
Keywords:
ECB Policy rate; ECB balance sheet; app portfolio; C. Policy consideration; bond supply net of ECB; Financial statements; Unconventional monetary policies; Central bank policy rate; Monetary stance; Securities
Cover IMF Staff Country Reports
Euro Area Policies: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Euro Area; IMF Country Report No. 23/264
International Monetary Fund. European Dept.
The 2023 Article IV Consultation discusses that the euro area economy has shown remarkable resilience in the aftermath of Russia’s invasion of Ukraine and the largest terms of trade shock in several decades, thanks to a swift policy response and a strong rebound in contact-intensive services. Looking ahead, growth is expected to pick up gradually throughout 2023 and 2024, supported by a recovery in real incomes in the context of continued tight labor market conditions, a further easing of supply constraints, and firmer external demand, even as financial conditions continue to tighten. While headline inflation has fallen sharply recently after reaching record high levels, core inflation is proving more persistent. As tight financial conditions restrain demand and supply shocks dissipate further, inflation is set to decline further but is expected to remain elevated for an extended period. Renewed supply shocks, which could result from an escalation of the war in Ukraine and a related increase of commodity prices, or a further intensification of geoeconomic fragmentation, would also push up inflation and hurt growth. On the upside, the economy could again prove more resilient than expected, especially amid a still large stock of excess savings.
Keywords:
Euro area headline inflation; inflation expectation; EU climate investment fund; EU AML authority; EU institution; EU bank; core inflation; EU economy; Inflation; Energy prices; Fiscal stance; Monetary tightening; Global; Europe
Cover IMF Working Papers
Measuring Multinational Production with Foreign Direct Investment Statistics: Recent Trends, Challenges, and Developments
Bruno Casella, Maria Borga, and Mr. Konstantin Wacker
In a complex global production landscape, the quest for measures of economic activity by multinational enterprises (MNEs) has become more pressing. Foreign Direct Investment (FDI) statistics, which capture financing aspects of MNEs, have often been used as a proxy for multinational production given their wide availability and cross-country comparability, but concerns that multinational production occurs in different countries than where financial positions are recorded call this practice into question. This paper revisits the main objections to the use of FDI as a proxy for multinational production, explores counterarguments, and provides guidance on the use of FDI statistics to measure multinational production.
Keywords:
FDI; multinational production; multinational enterprises; foreign affiliates; FDI statistics; FDI data; conduit FDI; FDI stock; Foreign direct investment; Special purpose vehicle; Stocks; Offshore financial centers; Global
Cover IMF Staff Country Reports
Luxembourg: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper summarizes the recent literature on the effects of automatic indexation of wages on the economy, including specifically in Luxembourg. It discusses potential pitfalls of the current system and explores some policy options to tackle them and make the system more resilient. With inflation pressure heightening in 2022, applying the mechanism would have entailed several rounds of indexation in a short time span, potentially harming competitiveness. The note discusses conjunctural concerns, drawing on the extensive literature about the cyclical properties of automatic wage indexation (AWI) schemes and the recent decisions taken by the Government to mitigate wage-price spiral and competitiveness risks by transferring some of the cost to public finances. Structural issues with AWI are explored in the context of long-term productivity and real wage trends at the sectoral level. Luxembourg’s practical implementation of the automatic wage indexation hinges on the availability of political will and could erode the country’s fiscal space.
Keywords:
HICP inflation; indexation event; inflation outcome; services inflation; NICP inflation; Inflation; Wage indexation; Wage adjustments; Real wages; Wages; Global
Cover IMF Staff Country Reports
Luxembourg: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Luxembourg
International Monetary Fund. European Dept.
This 2023 Article IV Consultation highlights that Luxembourg has shown resilience in the aftermath of the war in Ukraine and accelerated tightening of global financial conditions, partly helped by fiscal support. Although costly, the measures have helped temporarily keeping inflation below the levels in most euro area peers and limiting the number of wage indexations. Tighter financial conditions have started to affect the financial sector, with heterogeneity across segments. The financial sector, overall, remains resilient, though there are some pockets of vulnerabilities, especially in the real estate sector and non-bank financial institutions. Growth is expected to slow to about 1 percent in 2023, before gradually recovering to its potential percent over the medium term. Headline inflation is likely to moderate further but core inflation is expected to remain persistent. The near-term outlook is highly uncertain. Risks are tilted to the downside and stem from a deeper global slowdown, a de anchoring of inflation expectations, and systemic financial instability at the global level.
Keywords:
Luxembourg economy; money market rate; policy advice; liability positions vis-a-vis nonresident; central bank of Luxembourg; Inflation; Wage indexation; Mutual funds; Loans; Energy prices; Global; Europe