You agree with the idea that the SPV Prolog is stillborn…
: I honestly think it was a good initiative. And it wasn’t just me. At the time, there were four banks around the table. But as chair of the Luxembourg Bankers’ Association (ABBL) at the time, I was very much involved. And in the end, I felt that the solution put in place was far better than the success it ultimately had on the market.
There were a lot of discussions: how were we going to organise it, how were we going to do it? The idea came after a meeting on housing that [prime minister] Luc Frieden had called. I said: “We need to find a solution that comes from the market. But what we mustn’t do is import the risk of property developers onto the balance sheets of banks.
I’ve spent almost 40 years as a banker, I’ve seen a lot of international property crises, and I’ve seen this mistake made very often. That’s why I was determined to create a ring of protection around the banks to prevent this from happening, whilst at the same time putting in place a tool that would enable construction to get back on track. In any case, that was my wish.
Credit production had almost ground to a halt. I’d never seen anything like it in my entire career: almost overnight, an economic sector comes to a standstill, there are absolutely no more files, for reasons that are difficult to trace. There were several reasons for this: it was post-covid, the costs of living were becoming more expensive, energy prices were rising, there was a shortage of raw materials and interest rates were rising. Almost in the space of a weekend, customers decided to stop investing.
We have finance, but apart from that, everything that revolves around construction--the craftsmen, the joiners, the electricians--it’s a crucial ecosystem. And I wanted at all costs to prevent these businesses from falling.
Yet, in addition to your experience, you also make three-month investment forecasts. You must have had a pretty good idea of what could happen, right?
Everyone was a bit caught off guard. I’m still convinced that if you manage to get the market going again, if people see that building work is continuing, that they pass a building site every day, they’ll regain confidence. The economy has to work, people have to have jobs, interest rates don’t have to be too high. That was the environment in the second half of 2024, when Prolog started.
Yes, in the old days, we used to say “when construction goes, everything goes”...
It’s even very special in Luxembourg. Luxembourg doesn’t have as many economic sectors to diversify into. We have finance, but apart from that, everything that revolves around construction--the craftsmen, the joiners, the electricians--it’s a crucial ecosystem. And I wanted at all costs to prevent these businesses from falling.
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Why didn’t it work?
In my opinion, for two reasons. The first is that the promoters may not have fully understood the mechanism. We’ve explained it several times, but it’s clear that there are no files. So perhaps it wasn’t properly understood.
The second is that, when we started in the second half of 2024, interest rates began to fall. Some people said to themselves: “If rates go down, maybe I’ll manage on my own.” They preferred to negotiate with their bank, and I don’t exclude our own bank in this reasoning. They saw that the engine was restarting slightly, so they said to themselves: “Let’s try to unblock the situation without going through a dedicated structure, which is perceived as complicated.” And then there was the discount: Prolog was buying the project at a 15-20% discount, which is no mean feat.
But it’s important to understand that Prolog’s objective was not to buy at a high price, but to help companies get back on their feet. If, as a business owner, you believe in your project, you build and sell. And if it didn’t work, you had Prolog as a safety net. If it worked, you sold at your price. The model was more brilliant than the market perceived... but a product that doesn’t sell is a failure.
But there was still a dialogue between bankers and prooperty developers, right?
ABBL officials went several times to the Chamber of Trades, the Federation of Craftsmen... The mechanism was made for them, not for the banks. But they thought: “We don’t know what sauce we’re going to be eaten with.” And many articles said that the banks were making a profit on the developers. This was not true. We wanted to avoid risk on bank balance sheets, not make a profit.
But maybe the dialogue wasn’t deep enough. And I don’t understand why people wait until their company is almost bankrupt to seek support. Prolog offered a guarantee.
If the current pace continues, I’d say that by the end of 2026 we could be back to normal volumes.
Isn’t there also a question of the size of the property developers? Perhaps the big ones were strong enough. Maybe the others had bought up the land at a premium and couldn’t cut their margins that much?
Your analysis could be right. Those with strong backs can wait. And sometimes they tell themselves that the crisis will last two or three years, but that the weakest will disappear, and they will recover market share. This is normal in a restructuring. Developers in the middle of the market, on the other hand, often bought land later, at high prices, and with Prolog’s discount, they could find themselves at a loss. And we were aware of this. But you can’t help everyone. There are always healthy companies that go under because they invested at the wrong time. Personally, I would have preferred to do a project that was covered by costs, with no profit, but to keep going, rather than risk bankruptcy.
Was there an alternative?
None. That’s the problem. For me, the biggest economic risk at the time wasn’t the value of buildings or land, it was unemployment. If we didn’t manage to get this engine going again, there was a real risk of a snowball effect: bankruptcies, redundancies, loss of confidence...
The government has been too slow... over the last 10 or 15 years. The problem is structural, not new. It’s been there for 20-30 years.
In your opinion, when might the market return to normal?
If the current pace continues, I’d say that by the end of 2026, we could be back to normal volumes. That's a long way off, yes. But it all depends on global economic trends. For example, what the United States is doing today is creating a lot of uncertainty. And that uncertainty is holding back investment decisions.
Finally, has the government done enough? Did bankers have any other ideas to put forward?
The government acted quickly. It introduced aid fairly quickly. I didn’t really see any other measures it could have taken in a hurry. But I’d be more inclined to say that it's been too slow... over the last 10 or 15 years. The problem is structural, not new. It’s been there for 20-30 years.
A large proportion of the land is held by a hundred or so private owners or a few developers. Barely 15 to 20% of the land is in state hands. And these are hard to mobilise. For 30 years, we’ve been building only half of what we need. This structural problem cannot be solved simply by changing registration rates or aid ceilings. I think the measures taken recently by the SNHBM, the Fonds du Logement, etc. are excellent, but they come too late, and at levels that are still insufficient. We should have started 10 or 15 years ago. We could have avoided much of this increase in prices.
Isn’t it also a question of model? For example, in Switzerland, there are more tenants than owners.
Absolutely. In Luxembourg, 70% of people own their own home. In Switzerland, it’s the opposite: 60% rent. And over there, things are well organised. It’s a stable, professional rental market. We should also develop the rental market further. Local authorities could become landlords, as could institutional investors--why not insurers or pension funds? In Switzerland, pension funds have a large property portfolio, which they rent out with a reasonable and secure return. This is an avenue that we have neglected.
For too long we have been doing “more of the same”: more loans, more promotions. But we also needed to look for other models: cooperatives, new housing formulas. And we didn’t. Every prime minister for the last 30 years has declared housing a priority... without any concrete change.
Luc Frieden is perhaps the first to really get things moving, driven by circumstances. But I don’t think that the state can eternally guarantee everything that goes wrong. Luxembourg is a rich country. It should be better prepared for crises. We’ve invested a lot in social welfare, but very little in resilience.
An interesting example: Ireland invests over six billion a year in housing, but the results don’t always follow.
That’s true. And I prefer our model to that of Ireland. I think we’re better positioned as a financial centre. Ireland has relied heavily on taxation to attract business. But now that could backfire with global tax reform. Luxembourg hasn’t focused entirely on taxation. And that’s just as well. We need to think in terms of global competitiveness, not just tax attractiveness.
For the chairman of the board of directors of Raiffeisen and former chair of the ABBL, the problem is not the regulations born of the 2008-2009 crisis, but the layers that have been added subsequently in an attempt to make each scheme more perfect than the last. Photo: Eva Krins/Maison Moderne
How do you feel about the current “bank bashing”?
Frankly? It’s frustrating. Sad, too. Being a banker is a bit like football, everyone thinks they’re the coach, but few know how it really works. There is justified criticism, of course. But many things are the consequence of over-regulation. Since the 2008 crisis, the pressure has been enormous. As a result, some banks have stopped financing SMEs or opening complex accounts. Too many constraints, too little profitability. We’ve had to take on more people in compliance, audit and risk management... than we have to manage our customers! And that’s where the business is changing. Entire sectors are no longer being served. It’s a shame.
And it’s also holding back the development of the financial centre...
Yes, and it’s worrying. If we want to remain a place with a future in funds, private equity, etc., we need to be able to open accounts for these clients. Otherwise, this business will go elsewhere. At the ABBL, we’ve been working on practical guides to help clients prepare their files before applying to open an account. It’s not normal for it to take six or seven months.
But the regulations came about as a result of the 2008-2009 crisis because banks had gone a bit--shall we say--astray…
Regulation is necessary. But sometimes we seek perfection, and that becomes counterproductive. After 2008, the first regulations were useful. But since then, there has been one-upmanship. It’s not that we need fewer rules, but simpler ones. Otherwise, we lose competitiveness.
A risk with the bilateral agreements discussed by Trump
Could the current tensions with the US have an impact?
Not directly on the financial centre today. Luxembourg investment funds are not massively distributed to American individuals. And most of our banks are under European supervision. But there is a long-term risk: the United States negotiates on a country-by-country basis, and adapts its tax system through double taxation treaties. Other countries, such as Switzerland or Ireland could take advantage of this to ease their rules, and we risk being left alone with our regulatory burden.
Should Luxembourg create a strategic reserve fund?
Absolutely. That’s what I’ve been saying for years: we've lived through 30 years of golden age. But we haven’t built up any reserves. We spent it all on social welfare. Each government has added another layer. We should have a strategic cagnotte to defend our key sectors, to invest when we need to protect our market share. Otherwise, others will come and take our place.
And politically, is this type of reform possible?
It will be increasingly difficult for democracies. It takes courage to impose reforms. And talent to convince citizens. And on the other side, the populists will say: “You don’t need all that here.” That’s the real danger.
This article was originally published in .