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LUXEMBOURG COUNTRY REPORT
One of the smallest sovereign states in Europe, the Grand Duchy of Luxembourg is influential
within the European Union as its capital city (Luxembourg City) is one of the three official capitals
of the European Union and the seat of the European Court of Justice. In addition to its political
clout, Luxembourg has grown to become one of the economic leaders in the region. Its prosperity
was formerly based on steel manufacturing, but with the decline of that industry, Luxembourg
diversified and is now best known for being Europe’s most powerful financial center.1 The country
has been successful in maintaining high rates of investment in order to preserve further growth
prospects. However, heavy reliance on the financial sector has also been analyzed to serve as a
potential risk factor.2 Therefore, several efforts in diversification continue to be taken in areas like
space-mining, communication, and technology.3
HISTORY
The history of Luxembourg dates back to the year 963 AD when the Count of Ardennes, the
founder of the Luxembourg dynasty, built a castle on the territory of today's city of Luxembourg.
Beginning in the 14th century, members of the Luxembourg dynasty became influential political
figures as Holy Roman Emperors. Luxembourg's history is intertwined with its powerful neighbors.
Luxembourg was ruled by the Burgundians, Spanish, Habsburgs, and French until Luxembourg
became an autonomous Grand Duchy in 1815 under political union with both the Netherlands and
the German Confederation.4 The First Treaty of London in 1839 revised this arrangement, and is
considered the date of Luxembourg’s independence.5 Luxembourg’s independence and neutrality
were affirmed in the Second Treaty of London in 1867.6
1
BBC Country Profile, Luxembourg, http://www.bbc.co.uk/news/world-europe-17548470
http://ec.europa.eu/europe2020/pdf/csr2016/cr2016_luxembourg_en.pdf
3 http://www.wsj.com/articles/luxembourg-sets-aside-funds-for-asteroid-mining-push-1464947123
4
Encyclopedia Britannica, Luxembourg, https://www.britannica.com/place/Luxembourg#toc23420
5
CIA World Factbook, Luxembourg
6
Encyclopedia Britannica, Luxembourg.
2
Luxembourg’s neutrality was violated by German occupation during both World Wars. After the
Second World War, the country abandoned its perpetual neutrality and became an enthusiast for
international cooperation and European political, economic, and military integration.7 Luxembourg,
along with Belgium and the Netherlands, created the BENELUX Economic Union in 1944, and
participated in the Brussels Treaty of 1948 and formation of the North Atlantic Treaty Organization
(NATO) in 1949. The country improved its economic position through European Steel and Coal
Community (1952) and was a founding member of the European Economic Community (1957), a
forerunner for the European Union, in which Luxembourg continues to play an active role.8 In 1999
Luxembourg joined the euro currency area.9
GOVERNMENT
Luxembourg is a parliamentary democracy headed by a constitutional monarch, and is the world’s
only remaining grand duchy.10 The executive branch is led by the head of state, currently Grand
Duke Henri who succeeded to the title in 2000, and the Prime Minister, currently Xavier Bettel. The
Prime Minister is commonly the leader of the majority party or majority coalition within the
Chamber of Deputies, and is appointed by the monarch.11 Mr. Bettel formed a government in
December 2013 after snap elections in which his Democratic Party, the Socialists, and the Greens
emerged with a small majority over the largest overall group, the conservative Christian Social
Party. Mr. Bettel is the country’s first openly gay prime minister.12 The head of state’s role is largely
ceremonial, and was further restricted by a constitutional crisis in 2008 that resulted in the
parliament rescinding the monarch’s right to veto legislation.13
The legislature consists of the unicameral Chamber of Deputies, containing sixty seats with
members elected every five years. A 21-member Council of State, appointed by the Grand Duke on
the advice of the prime minister, serves as an advisory body to the Chamber of Deputies.14 The
Council's opinions have no binding effect, and the responsibilities of its members are in addition to
their normal professional duties. The separation of powers is flexible in Luxembourg, and there are
many relationships between the executive and legislative powers; the judiciary remains completely
independent.15 The judicial branch consists of the highest court, the Superior Court of Justice which
includes the Court of Appeal and the Court of Cassation, and the Constitutional Court. Judges of
both courts are appointed by the monarch for life.16
MEDIA
7
BBC Country Profile, Luxembourg, http://www.bbc.co.uk/news/world-europe-17548470
Encyclopedia Britannica, Luxembourg.
9
CIA World Factbook
10
Luxembourg Government, http://www.luxembourg.public.lu/en/le-grand-duche-se-presente/systeme-politique/index.html
11
CIA World Factbook
12
BBC Country Profile, Luxembourg
13
BBC Country Profile, Luxembourg.
14
CIA World Factbook
15
Luxembourg Government, http://www.luxembourg.public.lu/en/le-grand-duche-se-presente/systeme-politique/index.html
16
CIA World Factbook
8
Luxembourg exerts an extensive media influence and has a long tradition of operating radio and TV
services for pan-European audiences, including those in France, Germany, and the UK. Behind
much of this activity is the Radio-Television-Luxembourg (commonly known as RTL), which is
Europe's premier private radio and television broadcaster and has been a key part of media
markets across Europe for decades. Luxembourg is also home to Europe's largest satellite operator,
Societe Europeenne des Satellites (SES), which operates the Astra fleet – greatly extending the
country’s media empire. Freedom of speech and freedom of the press are guaranteed by
Luxembourg’s constitution. Print media are privately owned and reflect diverse viewpoints.17
ECONOMY
Luxembourg’s small, stable, high-income economy has historically featured solid growth, low
inflation, and low unemployment. The country continues to enjoy an extraordinarily high standard
of living, with its GDP per capita ranking among the highest in the world and is the highest in the
euro zone. Luxembourg also has one of the highest current account surpluses as a share of GDP in
the euro zone, and it maintains a healthy budgetary position and the lowest public debt level in the
region.18
The country has a highly industrialized, export-intensive, and high-tech service economy.
Luxembourg’s economy prospered greatly from the steel industry, but in recent decades the
country diversified its economy to include financial and technological services. The industrial sector
expanded to include the production of chemicals, machinery and equipment, rubber and other
products. The financial sector accounts for approximately 36% of GDP and serves as the leading
sector in the economy.19
As for technology, Luxembourg is the center of audiovisual and communication technologies. Most
recently, Luxembourg has been promoting the e-commerce sector by making significant
investments in digital infrastructure to become the leading country in the number of high-speed
Internet connections per capita. Overall, Luxembourg offers a favorable climate to foreign
investment and US firms are among the most prominent foreign investors with Goodyear
producing tires, DuPont producing chemicals, and Guardian Industries producing glass. The
government incentives for such medium, light and high-tech industries cover taxes, construction
and plant equipment.20
In recent years, Luxembourg has lost some of its advantage as a favorable tax location because of
OECD and EU pressure.21 In April 2009 the G20 added Luxembourg to the "grey list" of countries
with questionable banking arrangements. The country immediately made legislative
improvements, and in July 2009 the Organization for Economic Co-operation and Development
(OECD) commended Luxembourg for improving financial transparency with agreements on the
17
BBC Country Profile, Luxembourg.
CIA World Factbook
19
CIA World Factbook
20
Ibid.
21
CIA World Factbook
18
exchange of tax information with a dozen countries.22 In 2015, Luxembourg’s government complied
with EU requirements to implement automatic exchange of tax information on savings accounts,
thus ending banking secrecy. This has depressed banking activity and dampened GDP growth.
Additionally, changes to the way EU members collect taxes from e-commerce has cut
Luxembourg’s tax revenues, requiring the government to raise additional levies and to reduce
some direct social benefits.23
ECONOMIC INDICATORS
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GDP (purchasing power parity): $58.74 billion, up from $56.58 billion in 2015. Country
comparison to the world: 107.
GDP - real growth rate: 3.5%, down from 4.4% in 2015.
GDP - per capita (PPP): $102,000, up from $100,800 in 2015. Country comparison to the
world: 2.
GDP - composition by sector: agriculture: 0.2%, industry: 11.1%, services: 88.7%.
Unemployment rate: 6.7%, down from 6.9% in 2015. Country comparison to the world: 78.
Exports: $17.1 billion in 2016. Export commodities include: machinery and equipment, steel
products, chemicals, rubber products, glass. Export partners: Germany 22.1%, Belgium
16.7%, France 16.6%, UK 4.7%, Italy 4.6%, Netherlands 4% (2015).
Imports: $18.33 billion in 2016. Import commodities include: commercial aircraft, minerals,
chemicals, metals, foodstuffs, luxury consumer goods. Import partners: Belgium 27.6%,
Germany 22.9%, China 11.7%, France 9.5%, US 8.4%, Netherlands 4.2%, Mexico 4.1%
(2015).
Central bank discount rate: 0.05% (31 December 2013). Note this is the European Central
Bank's rate on the marginal lending facility, which offers overnight credit to banks in the
euro area.
CULTURE
The people of Luxembourg are called Luxembourgers. The immigrant population increased in the
20th century due to the arrival of immigrants from Belgium, France, Italy, Germany, and Portugal.24
Annually, over 10,000 new immigrants arrive in Luxembourg, mostly from the EU states, as well as
Eastern Europe. In 2000 there were 162,000 immigrants in Luxembourg, accounting for 37% of the
total population.25
Luxembourg has been heavily influenced by its neighbors France, Belgium, and Germany. Many of
its inhabitants are trilingual in French, German and Luxembourgish - a dialect of German. Each of
the three official languages is used as the primary language in certain spheres. Luxembourgish is
the language that Luxembourgers generally use to speak to each other, but it is not often used as
the written language. Since the 1980s, an increasing number of novels have however been written
22
BBC Country Profile, Luxembourg
CIA World Factbook
24
http://www.statistiques.public.lu/stat/TableViewer/tableView.aspx?ReportId=384&IF_Language=fra&MainTheme=2&FldrName=1
25
http://www.compas.ox.ac.uk/publications/papers/Country%20Case%20Luxembourg.pdf
23
in Luxembourgish. Most official business is carried out in French. German is usually the first
language taught in school and is the language of much of the media and of the church.26
Luxembourg's education system is also trilingual. The first years of primary school are in
Luxembourgish, before changing to German, while in secondary school, the language of instruction
changes to French. Proficiency in all three languages is required for graduation from secondary
school, but half the students leave school without a certified qualification, with the children of
immigrants being particularly disadvantaged.27
Luxembourg is a secular state, but the state recognizes certain religions as officially mandated
religions. This gives the state a hand in religious administration and appointment of clergy, in
exchange for which the state pays certain running costs and wages. The predominant religion is
Roman Catholicism, at 87% of the population.28
Acknowledgements:
Research and Data Development Provided by: Toghrul Aliyev and Olivia de Vesci, Research Assistants,
under the supervision and coordination of Dr. Gerard Janco, President of the Eurasia Center.
26
http://www.eu2005.lu/fr/savoir_lux/lux_publications/a_propos_langues/a_propos_langues.pdf
http://ec.europa.eu/public_opinion/archives/ebs/ebs_243_en.pdf
28
CIA World Factbook
27