Luxembourg

I - Political context

Political change     
I.1
What is the political context of the Eurozone crisis period in Luxembourg? Have there been changes in government, elections, referenda or other major political events during the period of 2008-present?

Luxembourg being one of the founding fathers of the European Union has a big interest in upholding the Eurozone. The long-time Prime Minister Jean Claude Juncker – head of government from 1995 to 2013 – was the head of the Eurogroup for 8 years and was supported by most parties in his actions in the context of the Euro crisis. The national laws approving the participation in the rescue mechanisms (EFSM, EFSF, ESM) were all passed by a big majority in Parliament consisting of the governmental parties CSV (Christian Democrats) and LSAP (Social Democrats) as well as déi gréng (the Greens) and DP (Conservative Liberals), which were in opposition at this time, and only rejected by a parliamentary minority (ADR (National Conservatives) and déi Lénk (Democratic Socialists)) which were part of the parliamentary opposition. The only exception was the Fiscal Compact, which was not supported by the Greens, the National Conservatives and the Democratic Socialists. Political discussions focus more on the development of the social model in Luxembourg, the reform of the education system and the pension system as well as the unemployment rate.[1]

On 20 October 2013 snap elections took place after the LSAP (Social Democrats) did no longer support the government under Jean-Claude Juncker because of a spy scandal which became public by a news paper report and which was confirmed by a parliamentary report which stated a non-efficient control by the government about the Luxembourg intelligence service.[2] Even though the former governing coalition of CSV (Christian Democrats) and LSAP (Social Democrats) has received enough votes in the 2013 elections to continue the coalition, the new Prime Minister is the leader of the DP (Conservative Liberals), Xavier Bettel, whose party has reached a governmental agreement with the Social Democrats and the Greens (so-called ‘Gambia-coalition’). The new government, supported by 32 MPs of their parties in the Chambre des Députés, is in office since 4 December 2013.[3] The CSV, which governed Luxembourg for nearly 40 years, is now in opposition under their leader Jean-Claude Juncker, holding 23 seats in the parliament. The National Conservatives (3 seats) and the Democratic Socialists (2 seats) complement the parties being in parliamentary opposition.

Economic problems also exist in Luxembourg, even though their significance in comparison to south European countries is evanescently low. Luxembourg is criticized because of the negative development of their competitiveness.[4] In response to this criticism Luxembourg has modified its pension system at the end of 2012, which is seen as a major political reform. In addition, the automatic system of rising wages was suspended for three years because this system is seen as not being in conformity with the real economic development of Luxembourg. The fast increase of wages in comparison to the economic development has reduced Luxembourg’s competitiveness.

Luxembourg had to defend its economic model (financial market place for banks) after the bail-out and bail-in of Cyprus. Prime Minister Juncker defended this economic model with the argument, that the financial system of Cyprus and Luxembourg is not a comparable model because Cyprus has four national banks while Luxembourg has around 150 banks, most of them having their seat in foreign countries. Furthermore, banks in Luxembourg do not have the same business model. However, public discussion in Luxembourg is aware of the inherent risks resulting from a construction of the national economy mainly based on the banking sector. Even though Juncker was not in favour of it for a long time, Luxembourg nowadays invests a lot of money in a new university and scientific research.[5]

[1] Interview with Jean-Claude Juncker on l’essentiel.lu, 18 December 2012, http://www.lessentiel.lu/de/news/luxemburg/story/21493287

[2] See the report ‘Luxembourg PM Juncker offers government resignation’ on BBC.co.uk, 11 July 2013, http://www.bbc.co.uk/news/world-europe-23275318

[3] See the report ‘Assermentation des membres du nouveau gouvernement’ on the official governmental website of Luxembourg, 4 December 2013, http://www.gouvernement.lu/3311168/04-assermentation

[4] See the report ‚Luxemburg rutscht aus der Top 20’ on lessentiel.lu, 24 October 2011, http://www.lessentiel.lu/de/news/luxemburg/story/30644379

[5] See the report in the German weekly newspaper DIE ZEIT, ‘Wo das Geld regiert’, 8 July 2013, http://www.zeit.de/2013/23/luxemburg-steuern-bankgeheimnis