While many have focused on Italy’s endorsement of the China-proposed Belt and Road Initiative (BRI), less attention has been paid to Luxembourg, which signed an agreement with China last week to cooperate on the initiative.
Luxembourg is far behind Italy in terms of economic size, but the small nation is a hub for financial institutions operating on a cross-border basis in the European market. The nation is the first-choice investment destination for many international financial institutions as they expand their business to Europe.
The tiny European nation of Luxembourg has a very important status in the EU. It is the eurozone’s leading financial centre and the world’s second-largest fund market.
With the UK possibly leaving the EU trade bloc, Luxembourg is eyeing London’s spot as the financial hub for EU countries after Brexit. With Luxembourg’s financial status rising, the country is likely to become a perfect gateway into Europe’s financial markets.
As a tiny landlocked nation, Luxembourg has a strong motivation to promote integration among European countries. Luxembourg is a founding member of the EU, having a certain influence upon the bloc. The former prime minister of Luxembourg, Jean-Claude Juncker, is currently the president of the European Commission.
Luxembourg can perhaps serve as a pragmatic bridgehead for cooperation between the BRI and Europe
The country was the first non-Asian nation to join the Asian Infrastructure Investment Bank (AIIB), a multilateral development bank that has been seen as a key supporter for BRI projects and will host the bank’s first annual meeting outside of Asia in July. While great progress has been made in bilateral cooperation, there’s much more to do in the future.
The BRI is not a debt trap, but there is indeed a yawning infrastructure funding gap in countries and regions along the routes, some of which have debt-related problems. China and Luxembourg can tap the potential for cooperation in a bid to alleviate debt-related problems through financial innovation.
The outside world has perhaps underestimated Luxembourg’s role in the BRI, but we believe what happened next will make them change their minds.