Yuriko Backes: "Neither deglobalization nor fragmentation is going to in any way contribute to finding solutions to the challenges we have"

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Do Better: Welcome to a new episode in the Do Better podcast series. We are pleased to have an exceptional guest to discuss some of the most important aspects of the current economic and political situation in the European Union; Yuriko Backes, the Luxembourg Finance Minister. Welcome to Esade and thanks for your time and willingness to participate in this podcast. 

Do Better: Let me just briefly introduce you to the audience so they can understand why it is such a privilege to have you here today. In January 2022, Yuriko Backes joined the coalition government in Luxembourg as finance minister. Her professional career began in 1994 at the Ministry of Foreign Affairs and since then she has held various positions such as the Permanent Representation of Luxembourg to the United Nations in New York, Permanent Representation of Luxembourg to the European Union in Brussels and in the Luxembourg embassy in Japan. This is just a short summary of some of the many professional milestones that you have achieved in your extensive political and diplomatic career. So, once we have this picture of yours clear, let’s begin by discussing an important topic for current European society, which is the role of the European Union in addressing the global challenges in a new multipolar world.    

Yuriko Backes: The European Union has an extremely important role to play to address the current “polycrises”. We have seen many crises over the years, one after the other. Some people refer to a ‘permacrisis’ because it seems we are in a permanent situation of crisis. Coming out of the sovereign debt crisis, or what we call the economic and financial crisis, was one thing. We had the pandemic. We also had terrorist attacks across Europe, and sometimes we forget that. Now we have the pandemic, as I said, and we are in a war. We are approaching 100 days of war in Ukraine. Nobody would have thought that we would be in a war again in Europe and with all the dramatic consequences that it brings. The role of the European Union is fundamental. In every crisis, the European Union becomes stronger. Coming out of the economic crisis we were able to put in place institutions that today help us deal with the crisis. During the pandemic, the initial reactions were quite national, but we very quickly saw that we cannot deal with these problems nationally. It’s not possible. Climate change must be at the top of our agenda and the European Union is a leader in addressing climate change problems; we have no planet B. We need to have solutions now and put in place everything needed to fulfil the Paris agreements. The role of the European Union in working together to address these crises is extremely important.  

"Never in history have we had to agree such sanctions so quickly’".

Coming back to the war situation, the role of the European Union is fundamental. Never has the EU reacted so quickly to this kind of a situation, with successive sanction packages against the Russian aggressor, trying to stop the war, cutting Russia from international financing, and financing the war. We have had discussions about oil and gas embargoes. The sanctions perhaps go too far for some countries in the EU. They don’t go far enough for others. Never in history have we had to agree such sanctions so quickly. We really see that the EU, together with its international partners (be it the USA, or in Asia) is defending our common values. And that is so important. Like I said, the EU has a key role to play. 

Do Better: Regarding the war: has this conflict accelerated the energy transition? What role does finance play in this process?

Yuriko Backes:I think nothing good really comes out of war. Ever. We see this war as a total human and humanitarian catastrophe. Thousands have died. Millions of people have fled the Ukraine. But the one thing, maybe, positive coming out this war situation is that we have been accompanying and trying to promote this energy transition for many years now. But here we have no choice. We need to get off our dependency on Russian energy. So, renewables is absolutely necessary. And, of course, finances have a big role to play in that sense, but we also need a public and private partnership in bringing about this transition. And to come back to your question: yes. I think the war has very much accelerated this green transition – and that’s a good thing.  

Do Better: To follow with these considerations about the war and its financial consequences: do we also need a stronger financial services sector in Europe – and what do you see as the key priorities for this European financial sector in the coming years? 

"We also need to avoid to build some kind of Fortress Europe, because also that would not be in our interest".

Yuriko Backes: Yes, I think that a strong European financial sector is absolutely indispensable. We need a strong internal market without barriers within the European internal market, because we need to make our economies efficient and sustainable. We need to address all these issues. A capital market union is a very important development to get the money to companies that need to innovate. One last dimension I would like to highlight is that we also need to avoid building some kind of Fortress Europe, because that would not be in our interest. We need to stay competitive at an international level and not cut ourselves off or use excuses such as Brexit or the pandemic, or discussions around European sovereignty, to build a Fortress Europe. I think that would be very much against Europe’s interests.    

We need to work together and financial centers, also a financial center like Luxembourg, will have a very important role to play. Financial centers are complementary, and Luxembourg has very much evolved in recent years as a cross-border financial center. Luxembourg is also adhering to all European and international standards, which is absolutely indispensable. When we talk about international taxation, the negotiations that are currently taking place at an OECD level are very much supported by the Luxembourg government because we need a level playing field. Luxembourg is also one of the main green financial centers. Luxembourg’s share of ESG fund assets in Europe is more than 30%; Luxembourg’s share in worldwide ESG fund assets is more than 20%. So, a financial center like Luxembourg really has a forward-looking role to play in sustainable finance and that is an important part of what we are trying to do in the European

Global ESG AuM by domicile (%). / Source: PWC

Do Better: So, from this privileged perspective on green or sustainable finance, what could be the opportunities and challenges for the European Union in this shift towards a sustainable finance system?

Yuriko Backes: Sustainable finance is really the way forward and as I’m speaking here to students, we need young people to be interested in this, also in the financial sphere. Young people have been demonstrating on the streets in recent years, such as for Fridays for Future, and really believe that we can change this world. We need so many new skills in the financial sector. I would really like to encourage young people to think about this. To think out of the box, because this is also what we need for the future skills in the financial sector. 

Do Better: I really agree with you that we need sustainable leaders for the future. In this major challenge of fighting the effects of climate change and in this race against time to start mitigating them, how will the transformation of the economy that we’re talking about move towards a more sustainable model. How will this change the global political situation of the world? 

‘We are seeing a deglobalization which, to some extent started during the pandemic, but with the war this has accelerated’. 

Yuriko Backes: There are many aspects to this. We have a really big shift in geopolitics now with the war. And when we are thinking now of war, we must not forget that countries like China and India also have to be partners in addressing challenges such as climate change. Another aspect of this war is that we are seeing also its impact on developing countries in terms of food shortages. We were working so hard in Luxembourg, which was one of the few countries contributing 1% of its GDP to development aid, in trying to help these countries develop. And now, with the war situation in Europe we’re seeing a huge shortage of food because I think Russia and Ukraine account for around 30% of global grain exports, and this is now having a direct impact on hunger in developing countries. This is another aspect of this situation where we need to find solutions globally and work together in multilateral institutions. We are seeing a deglobalization, which to some extent started during the pandemic, but has accelerated with the war . We are seeing a fragmentation, be it in supply chains but also in technology. And neither deglobalization nor fragmentation is going to help us find solutions to the challenges that we have in a global context. 

Do Better: Thank you very much for these considerations about those important and tough topics. And I’d like to finish this talk with a more personal question, because you’re the first woman to become Luxembourg finance minister. I wish that this information was not news, but unfortunately finding a woman leading her sector is still exceptional. After a career as long and as successful as yours in the field of diplomacy and politics, how do you perceive equality between men and women is progressing? Because this is also an important aspect of a sustainable society with equality and gender equality as a key aspect for many other inequalities such as poverty. What’s your perspective?

Yuriko Backes: This is a subject that is very dear to me. In many of the positions I held in my career, I was the first woman. I was the first woman representing the European Commission in Luxembourg, for example. I was the first woman to lead our Royal Household of our Head of State. As you mentioned, I’m the first woman in Luxembourg to be finance minister. During my career, gender equality has always been extremely important. As finance minister, when you look at the European Union there are seven female finance ministers, which is already many more than what we had a couple of years ago. Seven out of 27 is already not bad. In previous jobs I have always tried to be in contact with young women to encourage them to follow the career that they want to pursue. I sometimes have the feeling that women need to be encouraged and supported more than men. We represent 50% of the population, but it’s still often men you see in decision-making positions. In any sector, and in any company, the more diversity you have in decision-making areas, the better decisions you will take. Also on a global level, the most recent UN statistic I saw stated that 11% of finance ministers in the world are women. There’s lots of room for improvement. There are so many competent women everywhere. We need to support them, and women also need to work together. But we also need the support of men. If we want (in companies or in any kind of work) good outcomes in decision-making, we need to have diversity and women have so much to contribute.  

Do Better: Thank you very much for this final advice for our women, or female students, who are preparing themselves for tomorrow. I think your experience is really encouraging. And with this final personal reflection and after this enriching conversation for both myself and the audience, please let me thank you again for your time and willingness to share this precious knowledge and perspective with our audience. 

Yuriko Backes: Thank you very much for this very nice discussion. Thank you so much.