Ambassador Guex, exactly how old is the diplomatic relationship between Switzerland and Luxembourg?

“When I arrived in Luxembourg, I thought the bilateral relationship would be a few hundred years at most. To my surprise, I discovered it went back 700 years! In 1309 Henri VII, Count of Luxembourg and Emperor of Germany, granted the first three Swiss cantons ‘imperial immediacy’ or the right to address him directly in legal matters, instead of having to go through their previous occupiers, the House of Habsburg. This was the first diplomatic success of the young Swiss confederation!

At age 17 you went to the United States as part of an exchange programme. Is that what sparked your interest in international affairs?

“Definitely it did. I spent a year with a great family in Toledo, Ohio, and it clearly opened my eyes to the world. At that age you’re like a sponge, taking in everything and not yet as critical as you are even in your 20’s. I became open to American culture, and realized that I wanted to make my living in international affairs.

This is your first posting as an Ambassador. Do you feel there’s more pressure on you now?

“Yes and no. Previously when I wrote a report, my Ambassador would read it and have to agree with the content before sending it. Now when I sign something, I’m taking full responsibility for what I’m writing. Now I’m meeting directly with Swiss and Luxembourg cabinet ministers. So I have more visibility. On the other hand, a diplomat’s role is always the same: to be the eyes, ears and mouth of the government he represents.

What’s made the biggest impression on you since taking office two years ago?

“There’s the world before the financial crisis, and there’s the world after the financial crisis. I’ve always been impressed by how the Luxembourg authorities were aware trouble was looming. Luxembourg’s early warning system worked regarding the imminent pressure on banking secrecy. That the Luxembourg authorities clearly identified problems beforehand is a sign of how professional they are. I also mean beyond government ministers; Luxembourg’s senior civil servants are pretty sharp.

Switzerland and Luxembourg have many economic, geographic and linguistic characteristics in common. Do you think that adds a ‘special flavour’ to the relationship between the two countries?

“It makes it easier to understand each other. When our Finance Ministers meet they can speak in German, so it’s quicker for them to find common ground. Also we’re both small, multilingual countries with financial centres that represent an important part of our economies. As we are to some extent like-minded in this sense, it does make the dialogue between us much easier.

As a rival financial centre, what attracts Swiss companies to Luxembourg?

“Even though our financial services sectors are competitive, they are also complementary. Certainly in private banking, yes, we are competitors, but not like with the City of London.We are clearly complementary in that Luxembourg is a bridge to the European Union for Swiss financial service providers. Swiss insurers and investment funds, coming from a non-EU country, wouldn’t otherwise be able to take advantage of the EU ‘passport’ in financial services to reach customers across Europe under a single regulatory regime. Some Swiss financial firms want to have reporting, compliance and cash management centralized in one point for all their European subsidiaries, and that one point is Luxembourg.That’s why, for example, last year the world’s leading reassurance company Swiss Re decided to set up its new European hub in Luxembourg, following the implementation of the new EU directive on reassurance.

Where do you see economic and trade relations between Switzerland and Luxembourg going?

“As far as the trade in financial services is concerned, it will depend on how attractive Luxembourg remains in the future as a competitive international centre, and as a competitive bridge to the EU for non-EU financial service providers, like Swiss banks. From a personal point of view, I have no doubts that bilateral trade in financial services has a bright future. For example, a growing opportunity is in the new European market in cross-border pension fund management. It’s very difficult for non-EU firms to compete with Dublin and Luxembourg. But Swiss pension fund management companies could do well with Luxembourg as a bridge.Although trade in goods will probably remain relatively small, I see some interesting opportunities in green industry. Luxembourg is a leading developer of energy savings technology, which is a big issue for the steel industry. Swiss manufacturers are very green oriented and that’s an area that could see new business ties developing.

This year Switzerland agreed to adapt OECD tax standards. Does this mean that Swiss banking secrecy is dead?

“The G20 decided that OECD standards should be the worldwide standard in administrative co-operation in fiscal matters regardless of the type of the fiscal offence, be it fiscal fraud, which is a criminal offence, or fiscal evasion, which is an administrative or civil matter.On March 13 the Swiss government decided to abolish the difference between fiscal fraud and fiscal evasion to provide international co-operation on a very large basis. As a consequence, banking secrecy can no longer be used to refuse requests for co-operation coming from foreign tax authorities who are investigating tax evasion offences. It means that there is no fiscal secrecy anymore, but, and this is important, banking secrecy remains untouched as long as it covers private data protection or business affairs confidentiality. What do I mean by that?Unlike in a number of other countries, in Switzerland civil servants working for the tax authorities have absolutely no means to access your personal data or banking information. This approach developed because even though most people don’t have anything to conceal, many people simply prefer not to be in a ‘Big Brother Is Watching’ system. In other words, Swiss banks will respond to specific requests for information, for specific investigations, but will not co-operate in ‘fishing expeditions’ nor provide direct access to banking records.

What is the biggest misconception about Swiss banking secrecy and this year’s international agreements that you’ve encountered?

 “Before the G20 decision, Switzerland only co-operated and lifted banking secrecy in cases being prosecuted under criminal law. As years went by, the line drawn between fiscal fraud and fiscal evasion was getting difficult to understand for our main partners in Europe as well as in America. Now we are co-operating in all fiscal offences. Although this is the only issue which will be implemented, it’s a big step.

Do you fear an outflow of financial assets into smaller ‘tax havens’ from established markets such as Switzerland and Luxembourg?

“It’s a good question. It looks like Luxembourg and Switzerland haven’t suffered much of a withdrawal of capital flows. After the financial crisis, I’m not so sure investors will want to take the risk. So much money has been lost. Even supposedly safe bonds, like Lehman Bros., evaporated in value overnight. After that experience, I’m not so sure investors will want to go to less regulated places.

Are banking secrecy and international tax issues at the top of your agenda for 2010?

“It is one of Switzerland’s priorities to monitor the implementation of the new administrative fiscal co-operation, to see to what extent our competitors complete their homework as well as we are doing. Switzerland and Luxembourg have been singled out as bad guys. So we don’t want to end up as the only two financial places to adhere to the G20 decisions, while others get by without complying. That will create a market distortion.With the ‘Rosière Report’ on a new EU package of financial services supervision, I am following to what extent Luxembourg will be able to take advantage of the new regulations, will be hit by new regulations, or if there will just be a neutral impact.I also share the view of Luxembourg Finance Minister Luc Frieden when he warned against the ‘renationalization’ of the single European market for financial services. It is a concern if protectionist behaviour and protectionist measures are taken by national supervisors. This is clearly an even greater concern for financial centres like Switzerland which, unlike Luxembourg, is not a member of the EU.We also follow the European policy of Luxembourg very closely. Luxembourg has a big voice in the EU. Luxembourg has a strong tradition of having influential politicians in the EU scene, such as Luxembourg Prime Minister Jean-Claude Juncker and former European Commission Presidents Jacques Santer and Gaston Thorn. So it’s important for us to understand Luxembourg’s policy priorities.

You were deputy-head of mission at the Swiss Permanent Mission to the European Union in Brussels. You must have been asked daily: Why isn’t Switzerland a member of the European Union?

 “When the six founders of what would become the EU gathered for the 1957 Treaty of Rome, it was clearly identified as a creation of the West in the midst of the Cold War. As a neutral country, Switzerland could not take part in such a political structure at that time. Of course, this has become irrelevant since the Berlin Wall fell.However, keep in mind that in Switzerland, the people always have the last word. Each law passed by the Swiss Federal Parliament can be challenged by the people. If just one per cent of citizens sign a petition, the law has to be submitted to a referendum. The Swiss are very much attached to this part of their political system. But once inside the EU, such a system would have to be deeply reformed. What if one per cent of Swiss citizens opposed an EU law?There are also economic factors. Switzerland would definitely be a net contributor to the EU and our estimate is that it would cost 0.8% of GDP, more than two billion euros per year. In addition, Swiss franc interest rates have always been at least one per cent lower than the Deutsche Mark and now the euro. If Switzerland joined the EU, we would join the Eurozone. But that means, for example, a more expensive mortgage. The Swiss are not ready for that yet.

Will Switzerland ever be part of the European Union?

“As long as the bilateral agreements provide Switzerland with fairly good access to the single market, we can keep the bilateral approach. On the other hand, if one day Swiss sovereignty is degraded by the bilateral approach, or if the EU ‘forces Switzerland to make up its mind’ then we would reconsider accession.At some point it could be an advantage to be part of the EU decision-making process. To give our opinion directly at the negotiation table in Brussels, instead of through the bilateral process. Right now we take more and more EU legislation without any exceptions. This could have its limits. We don’t want to become just a ‘copy and paste’ country.”