EU country briefing: Luxembourg

The following article is a part of a series of brief country profiles for the EU-28 ahead of the European elections in May.

Once reliant on its strong steel industry, Luxembourg, the EU’s smallest member state by area and second smallest by population, is now best known for its thriving financial centre, which has turned it into one of the wealthiest countries in the world.

Luxembourg stands out for having three national languages (French, German and Luxembourgish), being a founding member of the European Union, the European Monetary Union and the Schengen Area, as well as home to one of three official headquarters to the EU’s institutions (along with Strasbourg and Brussels).

The position of European Commission president has fallen to a Luxembourger on several occasions, with Jacques Santer (1995-1999) being the first, followed by Gaston Thorn (1981-1985) and now the current Commission President Jean-Claude Junker in 2014.

The country of 600,000 people will elect six Members of European Parliament (MEPs) for this year’s EP elections, a relatively high representation (one MEP per 100,000 people), compared to other European member states [In Germany: one MEP represents over 800,000 inhabitants).

The maximum number of MEPs per country is 96, while the minimum number of MEPs per country is 6.

Luxembourgers are the most positive about their EU membership out of all EU member states: 87% consider membership a positive thing, while just 3% are unsatisfied. Likewise, they also strongly identify as EU citizens, with 89% saying they feel as EU citizens (9% do not) and 85% are in favour of the euro as the common currency.

Economy

Luxembourg recorded a strong GDP per capita of €80,300 in 2017, which is by far the highest in Europe and also one of the highest in the world. This equates to 253% of the EU average in purchasing power standards. These figures mask significantly lower but still well above-average median income figures.

The country’s economic performance is primarily a result of its strong financial services sector, facilitating an average growth rate of almost 3% per year between 2014 and 2018. Continued economic expansion will likely be maintained by population growth as a result of immigration, as the country expects its population to exceed 1 million by the year 2060.

Luxembourg’s contribution (0.42% in real GDP, €55 billion in 2017) to the EU’s total budget is over 3 times higher than its relative population size (0.13%).

Compared to the average EU28 unemployment rate (7%), the country is doing well at 5.4% in 2018. However, youth unemployment is more troublesome at 13.5%, albeit still below the EU28 average of 15.6%.

Despite the aforementioned advantages, Luxembourg faces significant economic risks over Brexit, general global uncertainty, and stricter international tax rules that attempt to combat the country’s reputation for being an international tax haven.

“Juncker used controversial, business-friendly tax policies to transform the EU’s second smallest state from a fading steel-based economy into a popular regional hub for multinational businesses,’’ the International Consortium of Investigative Journalists commented on Juncker’s Prime Ministership of Luxembourg between 1995 and 2013.

Political context and directions

The Grand Duchy of Luxembourg is a parliamentary constitutional monarchy, with a single legislative chamber. The head of state is the Grand Duke (currently Grand Duke Henri), who still has an important position in the Constitution (1868). He is expected to follow the principle that ‘‘the Sovereign reigns but does not govern’’.

The Grand Duke forms the executive with the Government, which in turn is led by the Prime Minister (currently Xavier Bettel). In practice, however, the latter holds actual power, as the head of state is required to respect the principle of democracy as per the constitution.

The political landscape at the start of the 20th century was determined by three political parties: The Social Democrats who existed from 1902, the Liberal League from 1904 and the Party of the Right from 1914.

Over time, these parties have evolved and re-branded themselves as the social democratic Luxembourg Socialist Workers’ Party (LSAP), the liberal Democratic Party (DP) and the conservative Christian Social People’s Party (CSV).

These three parties still dominate the political scene, notably the CSV which has often occupied the largest number of seats in the Luxembourgish Parliament (and at times the absolute majority), followed by the LSAP and DP.

A notable fourth party are the Greens (DG). Having entered parliament for the first time in 1984, it has gradually increased its influence. The party has been part of Bettel’s coalition government since 2013, and it secured 15% of the vote at the 2018 elections (from 10% in 2013).

Another noteworthy political party is the national conservative Alternative Democratic Reform Party (ADR), which stepped onto the parliamentary stage in 1989. Initially founded as a pensioner’s interests party, the peak of its support (11%) came in 1999.

Far behind trails the socialist and Eurosceptic party The Left (DL), which broke through at the 1999 elections, but often struggles to maintain any parliamentary representation.

Post-WW2 governments have been led mostly by the CSV, with a short break 1974-1979, when the DP and LSAP formed a government instead. Nevertheless, the party regained power in 1979.

However, snap elections in 2013 resulted in a considerable loss of power for the CSV. Elections were held after the LSAP withdrew from the government over a phone-tapping scandal, revealing how the country’s security agency was illegally bugging politicians and members of public, purchased cars for private use and took payments and favours in exchange for access to influential officials.

Whilst the CSV still managed to win the elections, its attempt to form a government was unsuccessful. This benefitted the DP, LSAP and The Greens. The DP’s new and first openly gay leader, Xavier Bettel, would then unexpectedly dethrone Juncker, who had been prime minister for nearly two decades (1995-2013).

The parties in Bettel’s government coalition secured another majority in 2018. This election also saw the breakthrough of the Pirate party, and a surge for the Greens.

The European migrant crisis did not dominate the country’s political debate as clearly as it did in other member states, with the country generally being more open to receiving refugees from war-torn regions.

Indeed, the minister for foreign affairs and migration, Jean Asselborn (who is also the country’s most popular politician and its minister for foreign and European affairs since 2004), is known for his implacable attitude towards European nationalists, such as Italy’s Matteo Salvini.

The Duchy is also notably multicultural, with 16% of the population being Portuguese, 7.6% French, 3.6% Italian, 3.6% Belgian and 2.2% German.

However, Bettel’s government lost a referendum on three questions in 2015, including one on whether to grant voting rights to foreigners (without Luxembourgish nationality) who have lived in the country for more than ten years.

This revealed a complicated picture in Luxembourg, where just over half of the population have Luxembourg citizenship. While the referendum was lost, the issue of extending voting rights remains an important topic in the country.

On occasion, top politicians such as Asselborn have had tough positions on certain issues and claimed the moral high ground. He suggested expelling Hungary from the EU for building a wall on its borders, and for violating the rule of law.

Bettel also often pleads for European values and tolerance, including at a Bratislava EU Summit in 2016, where he made a bold statement:

“I’m of Polish and Russian origin, with Catholic, Jewish, Orthodox and atheist grandparents. I’m gay and I’m married. I represent the minority of minorities and yet I have been able to become prime minister. Could that have happened on any other continent?”

Moreover, during this year’s Summit of the EU and Arab League, Bettel not only brought along his husband, he also did not shy away from criticising the violations of human rights of homosexuals in certain countries in that region.

Earlier in 2014, Bettel’s government legalised gay marriage, which the prime minister himself profited from in 2015 by marrying his partner.

Luxembourg does have a bad reputation for being a tax paradise. In 2009 the G20 placed it on a ‘grey list’ over its questionable banking arrangements and the Organisation for Economic Co-operation and Development (OECD) has instructed Luxembourg to improve its financial transparency on multiple occasions.

In 2014, the LuxLeaks shed light on how Luxembourg helped hundreds of multinational companies – Apple, IKEA and Pepsi amongst many others – to save billions of dollars in tax payments. The issue was also a headache for Juncker, who had just become the European Commission president shortly before.

While Bettel’s government made changes in the country’s tax laws, including making aggravated tax evasion a criminal offence, the country has continued making questionable tax deals – as have many other countries, with seven EU states still classified as tax havens.

Regardless of these events, Luxembourg’s political landscape remains relatively stable despite the turmoil in many other countries. The traditional parties that have dominated Luxembourg ever since World War II continue to do so up until this day, albeit with a growing role for the Greens and a marginally declining role for the CSV.

Predictions

Up until 2009, both European Parliament (EP) and national elections were held on the same day. A 2013 change, however, allowed parties to concentrate on European campaigns by redirecting their focus from national to European issues.

Supported by mandatory voting, the turnout for the EP election in 2014 was 85.5%, (compared to the European average of 42.6%). Many smaller parties stand little chance of winning a seat, due to the de-facto electoral threshold since the country can only elect six MEPs.

The CSV (part of the European People’s Party) continues to enjoy the biggest share of support. It steadily polls at 28-30%, which should result in 2-3 MEPs.

Three other parties are also set to win an MEP, including the LSAP, expected to receive roughly 18% of the votes (Progressive Alliance of Socialists and Democrats (S&D)), the DP, which is currently polling at 17% (Alliance of Liberals and Democrats (ALDE)) and The Greens (Greens–European Free Alliance (Greens/EFA), carrying around 15% of the votes.

All in all, electoral and political trends show that mainstream parties (broadly agreed on issues regarding the rule of law, migration, and further EU integration) will more than likely take home 5 of the 6 MEP seats. Just one seat could potentially be won by a Eurosceptic party.

Simona Brăileanu works as an evaluation and research junior consultant in EU policies. She holds a master’s degree in International Relations and Multi-level Governance.

Andra Banea works as an evaluation and research project coordinator in international development and EU policies. She holds a master’s degree in international Relations and Multi-level Governance.

Robert Steenland works as an evaluation and research consultant in EU policies, as well as an analyst in EU politics.  He holds a double degree master in European Governance.

Fengwei David An is a graduate student in International Relations and Diplomacy at Leiden University’s Faculty of Governance and Global Affairs and the Netherlands Institute for International Relations Clingendael.

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