COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and stability programme for LUXEMBOURG Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Luxembourg’s 2012 national reform programme and delivering a Council Opinion on Luxembourg’s updated stability programme for 2012-2015
Date: 2012-05-30
Institutions: European Commission
Subjects: Luxembourg, budgetary equilibrium, pay policy, reduction of gas emissions, retirement conditions, youth unemployment

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
SWD(2012) 315 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2012 national reform programme and stability programme for  
LUXEMBOURG 

Accompanying the document 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Luxembourg’s 2012 national reform programme and delivering a Council Opinion 
on Luxembourg’s updated stability programme for 2012-2015 

{COM(2012) 315 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
Contents 

EXECUTIVE SUMMARY......................................................................................................... 3 

1. INTRODUCTION ................................................................................................................ 4 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES ........................................................ 5 

2.1. Recent economic developments and outlook .............................................................. 5 

2.2. Challenges .............................................................................................................. 6 

3.  ASSESSMENT OF POLICY AGENDA ............................................................................. 8 

3.1. Fiscal policy and taxation .......................................................................................... 8 

3.2. Financial sector...................................................................................................... 12 

3.3. Labour market, education and social policy .............................................................. 14 

3.4. Growth and competitiveness structural measures...................................................... 17 

3.5. Modernisation of public administration...................................................................... 20 

4.  OVERVIEW TABLE ...................................................................................................... 22 

5.  ANNEX........................................................................................................................ 26 

2

 
 
 
 
EXECUTIVE SUMMARY 

Luxemburg's  growth  expectations  are  modest,  with  an  average  GDP  growth  slightly 
above  1%  in  2012,  followed  by  an  acceleration  to  around  2%  in  2013.  Job  creation  is 
slowing  down  since  the  end  of  2011.  As  a  result,  the  unemployment  rate  started  rising 
again, and is expected to reach a historic high of around 6% in 2013.  

Luxembourg has announced a fiscal consolidation package of around 1.2% of GDP for 
2013. The government also proposed a pension reform which is currently debated in the 
parliament.  The  application  of  the  automatic  indexation  of  wages  has  been  limited 
between  2012  and  2014  and  steps  were  taken  to  tackle  the  relatively  high  youth 
unemployment. 

The  commonly  agreed  indicator  for  long-term  fiscal  sustainability  (S2)  is  among  the 
highest  in  the  EU,  posing  a  pressing  challenge  which  is  largely  due  to  the  expected 
increase  in  pension  expenditure.  In  order  to  remain  competitive,  unit  labour  costs  will 
need to evolve more in line with developments in productivity and competitiveness. The 
heavy  dependence  of  the  economy  and  public  finances  on  the  financial  sector  is  a 
structural  risk  for  the  country.  The  youth  unemployment  rate  is  relatively  high  in 
Luxembourg,  when  comparing  to  the  low  overall  unemployment  rate.  Luxembourg’s 
education  system  faces  specific  challenges  due  to  the  multilingualism  demands  of  the 
system,  the  high  proportion  of  immigrants  in  the  population,  and  the  high  demand  for 
skilled  workers  on  the  labour  market,  which  need  to  be  tackled.  Finally,  Luxembourg 
does not appear to be on track to reach its Europe 2020 target for non-ETS greenhouse 
gas emission reduction. 

3

 
 
1. INTRODUCTION 

Procedural aspects 

In June 2011 the Commission proposed four country specific recommendations (CSRs) 
for  economic  and  structural  reform  policies  for  Luxembourg.  In  July  2011  the  Council 
adopted  these  recommendations  which  concerned  public  finances,  the  pension  system, 
wage setting and the labour market. 

In November 2011 the Commission published its Annual Growth Survey for 2012 (AGS 
2012) in which it set out its proposals for building the necessary common understanding 
of the priorities for action at national and EU level in 2012. It focused on five priorities 
—  growth-friendly  fiscal  consolidation,  restoring  normal  lending  to  the  economy, 
promoting growth and competitiveness, tackling unemployment and social consequences 
of the crisis, and modernising public administration — and encouraged Member States to 
implement them in the 2012 European Semester. 

Against  this  background,  Luxembourg  presented  updates  of  its  national  reform 
programme  and  stability  programme  in  April  2012.  These  programmes  give  details  of 
progress made since July 2011 and plans going forward. This Staff Working Document 
assesses the state of implementation of the 2011 CSRs and Euro Plus Pact commitments, 
as well as the AGS 2012 in Luxembourg, identifies current policy challenges and, in this 
light, examines the country’s latest policy plans. 

Overall assessment 

Overall, Luxembourg has implemented the Council recommendations partially and stuck 
to  its  commitments  under  the  Euro  Plus  Pact.  Luxembourg  is  performing  quite  well  in 
terms of AGS 2012 priorities. 

The main challenges identified in July 2011 remain broadly valid. While the 2011 public 
deficit was fairly small, public finances are expected to worsen during the coming years 
and  Luxembourg  is  expected  to  move  away  from  its  medium-term  objective  (MTO). 
Moreover,  the  commonly  agreed  indicator  for  long-term  fiscal  sustainability  (S2)  is 
among  the  highest  in  the  EU,  posing  a  pressing  challenge  which  is  largely  due  to  the 
expected increase in pension expenditure.. The reform proposal from the government is 
rather  limited  in  scope  and  therefore  does  not  yet  seem  to  guarantee  the  long-term 
sustainability of the system. Luxembourg has a very good economic track record, but in 
order to remain competitive, it needs to ensure that unit labour costs evolve in line with 
productivity developments. The temporary limit to the application of the automatic wage 
indexation  decided  by  the  government  could  moderate  wage  growth,  but  does  not 
guarantee an evolution in line with productivity and wage developments in neighbouring 
countries. Progress has been made in combating youth unemployment, but there is still 
the  need  for  a  coherent  strategy,  stronger  collaboration  with  municipalities,  more 
efficient  use  of  employment  services  and  more  investment  in  training  and  education. 
Unemployment seems to have an increasingly structural character requiring active labour 
market policies. Regarding Europe 2020 objectives on energy and climate, Luxembourg 
does not appear to be on track to reach its targets for greenhouse gas emission reduction. 
Low fuel taxes induce ‘fuel tourism’ and negative externalities in terms of pollution and 
congestion. 

The policy plans submitted by Luxembourg respond to last year’s recommendations, but 
in some areas they lack the ambition to address the challenges in a comprehensive and 
permanent way. 

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2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. Recent economic developments and outlook 

Recent economic developments 

In  contrast  to  its  neighbours,  the  Luxembourg  economy  is  not  yet  at  its  pre-crisis 
level.  GDP  growth  for  the  years  2008-2010  has  been  revised  substantially  downwards 
due  to  lower  exports  of  (financial)  services,  demonstrating  that  the  crisis  has  hit 
Luxembourg more severely than previously thought. In 2011 the Luxembourg economy 
grew  by  1.6 %  according  to  the  first  estimate.  The  turbulence  on  financial  markets 
affected  the  performance  of  the  important  financial  sector,  which  faced  a  decline  in 
added value by more than 5 % in 2011 while net profits fell by almost 25 % due to value 
adjustments  following  the  sovereign  debt  crisis.  Manufacturing  recovered  quickly  in 
2010  after  the  2009  global  crisis,  but  has  again  been  facing  declining  output  since  the 
second quarter of 2011. The relapse was particularly marked towards the end of the year, 
when a number of important iron and steel plants closed partially. Other sectors on the 
other hand showed resilience during a turbulent year end. 

Private and public consumption increased moderately in 2011, while investment has been 
the  most  dynamic  component  of  GDP.  Net  exports  contribute  negatively  to  growth 
since 2008. This was again the case in 2011, not surprisingly given the poor performance 
of financial services and manufacturing, two important export sectors. 

Job creation was dynamic over the first half of 2011, but slowed down afterwards. 
The  unemployment  rate  declined  to  5.5 %  at  the  beginning  of  2011,  after  peaking  at 
around 5.9 % at the end of 2010 (up from less than 4 % at the beginning of 2008). Since 
summer 2011 it has been rising again, resulting in a historic high of 6%. The revisions of 
the  national  accounts  data  also  show  that  unit  labour  costs  have  increased  even  faster 
than  previously  thought,  which  can  be  explained  by  labour  hoarding  during  the  crisis. 
Nominal  unit  labour  costs  increased  by  almost  15 %  between  2008  and  2011,  which  is 
more than two and a half times faster than in the neighbouring countries. 

Economic outlook 

Growth expectations for 2012 are modest, given the weak economic performance of 
the euro area, Luxembourg’s principal export market. Increasing confidence should 
support  a  gradual  return  of  growth  from  the  second  quarter  on,  resulting  in  average 
growth  of  around  1 %  in  2012.  Again,  growth  is  exclusively  supported  by  domestic 
demand while net exports are still expected to contribute negatively, although their drag 
on  growth  is  expected  to  diminish.  Financial  services  should  start  to  benefit  from  the 
progress  made  in  tackling  the  sovereign  debt  crisis,  but  the  sector  has  yet  to  regain  its 
pre-crisis  dynamism.  In  2013  GDP  is  expected  to  grow  by  around  2 %,  well  below  the 
average rates recorded before the economic and financial crisis. The main contribution in 
2013 will again come from domestic demand. The modest contribution of manufacturing 
and financial services to recent growth and job creation might provide food for thought 
about possible new  sources of growth.  Given its high labour costs, Luxembourg  would 
benefit  from  increased  intensity  of  applied  research  and  innovation  in  pushing  the 
productive sector towards high added value products. 

Procedural and governance issues 

The  national  reform  programme  (NRP)  and  the  stability  programme  have  been 
prepared in a coherent way. They have been debated jointly in the national parliament 
prior  to  adoption  and  have  been  adopted  together  by  the  government.  The  NRP  was 
prepared  through  in-depth  consultations  with  the  social  partners,  local  actors  and  civil 

5

 
 
society in order to increase ownership of the Europe 2020 strategy and the Luxembourg 
2020 strategy at national level. In order to improve the involvement of local actors and in 
the framework of the European cooperation project ’EU 2020 going local’, an exchange 
of  best  practice  took  place  in  2011  with  12  European  regions  in  the  partnership  for 
sustainable energy and transport. In order to optimise the coordination of the NRP, the 
inter-ministerial  network  Europe  2020  is  consulted  on  a  regular  basis  regarding  the 
implementation  of  reforms.  The  Observatory  of  Competitiveness  is  in  charge  of  the 
coordination. In addition, Luxembourg communicates on the Europe 2020 strategy to the 
wider public through the organisation of public events. 

2.2. Challenges 

The  main  policy  challenges  for  Luxembourg  have  remained  broadly  unchanged. 
Public  finances  improved  only  slightly  in  2011,  with  a  general  government  deficit  of 
0.6 %.  However,  this  relatively  small  overall  deficit  hides  a  deficit  of  2.4 %  at  the 
level  of  the  central  government,  mitigated  by  an  accumulation  of  pension  reserves  in 
the  social  security  subsector.  The  medium-term  fiscal  sustainability  challenge  in 
Luxembourg  is  relatively  low,  due  to  the  low  government  debt  and  a  surplus  on  the 
structural  primary  balance.  However,  prudence  is  warranted  because  of  a  high  level  of 
non-reducible, structural expenditure. Moreover, a number of sources  of revenue  might 
erode  in  the  future,  such  as  excise  duties  on  cross-border  sales  of  fuel  (‘fuel  tourism’), 
VAT  revenues  from  e-commerce1  and  corporate  income  taxes  paid  by  financial 
institutions.  In  contrast  to  the  low  medium-term  risk,  the  commonly  agreed  indicator 
for  long-term  fiscal  sustainability  (S2)  is  among  the  highest  in  the  EU,  posing  a 
pressing challenge which is largely due to the expected increase in pension expenditure.2 
Despite  the  accumulation  of  reserves,  a  substantial  reform  of  the  pension  scheme  is 
needed to ensure its long-term sustainability. 

It is all the more necessary to have a good starting position with respect to this long-term 
fiscal challenge as the Luxembourg economy is unlikely to be able to grow at the same 
average  pace  as  it  did  in  the  past.  The  financial  sector  has  been  Luxembourg’s  main 
growth engine since the early 1980s but to what extent it will be able to keep playing this 
role  in  the  future  is  uncertain.  Even  if  financial  activities  around  the  world  were  to 
remain  as  buoyant  after  the  crisis  as  they  were  before,  the  question  arises  whether 
Luxembourg  will  be  able  to  preserve  and  continue  to  develop  the  competitive 
advantages,  e.g.  in  terms  of  fiscal,  legislative  and  regulatory  environment,  that  have 
made  it  an  attractive  place  for  this  type  of  activity.  Thus,  although  the  Luxembourg 
financial  sector  is  relatively  healthy,  the  heavy  dependence  of  the  economy  and 
public  finances  on  this  industry  is  a  structural  risk.  Investment  in  research  and 
innovation is essential to stimulate future growth and job creation in Luxembourg. The 
country’s competitiveness will depend on prioritising expenditure on education, research 
and  innovation.  However,  it  should  also  be  recognised  that  the  possibilities  for 
diversifying by tapping into other sources of growth are limited in such a small country. 

A  longstanding  challenge  for  the  Luxembourg  economy  is  the  loss  of  cost 
competitiveness as a result of high wage increases and very low productivity growth 
(the productivity level is however very high). As mentioned in section 2.1, nominal unit 
labour  costs  continue  to  increase  faster  in  Luxembourg  than  in  neighbouring  countries. 

1 Currently around EUR 500 m of annual revenue (1.2 % of GDP). The European VAT package foresees 
that from 2015 on, VAT revenues on e-commerce will be due in the country of residence of the consumer 
and not in the country of residence of the company. A transitional period is envisaged from 2015 to 2018. 
2 The current value of the S2 indicator, pointing towards a medium risk regarding long-term fiscal 
sustainability, does not take into account the proposed pension reform because it has not yet been adopted 
by the Parliament. 

6

 
 
                                                 
Unit  labour  costs  are  increasing  in  particular  in  the  manufacturing  industry.  Overall 
inflation  as  well  as  core  inflation  is  systematically  higher  in  Luxembourg  than  in 
neighbouring countries or in the euro area. High inflation coupled with rapid growth in 
real unit labour costs tends to point to an upward cost-price spiral. 

Figure 1: Decomposition of changes in Nominal Unit Labour Costs3 

While  total  unemployment  is  low  in  Luxembourg,  the  country  is  faced  with  steadily 
increasing  long-term  unemployment.  The  youth  unemployment  rate  is  more  than 
three  times  the  overall  unemployment  rate,  while  in  other  countries  with  a  similar 
unemployment  rate  it  is  less  than  twice  the  overall  rate.  On  the  other  hand,  the  youth 
unemployment ratio (calculated as the share of unemployed in the total population aged 
between 15 and 24) is very low, pointing to a low proportion of the active population in 
this age group. The structural component of unemployment has been steadily increasing 
over  the  last  decade,  including  in  times  of  significant  economic  growth  with  booming 
employment, which suggests that part of the workforce does not match the needs of the 
economy. The employment rate for older workers (54-64) is increasing but remains far 
below  the  European  average  (39.3 %  in  2011  against  47.4 %  for  the  EU  as  a  whole). 
Luxembourg’s  education  system  faces  specific  challenges  due  to  the  multilingualism 
demands of the system,4 the high proportion of immigrants in the population (43 %), and 
the high demand for skilled workers on the labour market. 

Greenhouse  gas  emissions,  amounting  to  19.8  tons  per  capita  in  2010,  are  still  the 
highest  in  the  EU.5  Luxembourg  has  undertaken  to  reduce  emissions  in  non-ETS 
(Emissions Trading System) sectors by 20 % by 2020 (compared to 2005) as part of the 
energy  and  climate  headline  targets.  According  to  the  latest  2020  projections  based  on 
existing  measures,  however,  Luxembourg  is  expected  to  increase  emissions  by  9 % 

3 The Nominal Unit Labour Cost Index is computed as nominal compensation per employee (Ameco: 
HWCDW) divided by real gross domestic product per person employed (Ameco RVGDE). The growth 
rate of this index may be further split into the contribution of inflation (in this case, the GDP deflator). 
4 The working language of nursery education (for children aged between 3 and 5) is generally 
Luxembourgish. Primary education (6-11) is in German, except the French language courses. During the 
first years of secondary education, most subjects continue to be taught in German. In classical higher 
secondary education, the lingua franca for all subjects other than language courses becomes French, while 
German prevails in the vocationally orientated higher secondary education. 
5 This is partly explained by the fact that fuel sold to non-residents enters into the calculation of emissions 
in Luxembourg. 

7

 
 
 
 
                                                 
compared to 2005, thereby falling short by 29 % (of base-year emissions) relative to the 
target.6  

3.  ASSESSMENT OF POLICY AGENDA  

3.1. Fiscal policy and taxation  

Budgetary developments and debt dynamics 

The medium-term budgetary strategy outlined in the stability programme consists 
of  a  package  of  consolidation  measures  of  around  1.2%  of  GDP  in  order  to  bring 
the deficit on a downward path and provide a wider room for manoeuvre in case of 
negative shocks. This package would lead to an improvement in the structural balance in 
2013.  However,  the  programme  does  not  envisage  achievement  of  the  medium-term 
budgetary objective (MTO), a surplus of 0.5% of GDP on the structural balance, within 
the programme period. Moreover, this MTO cannot be regarded as appropriate under the 
provisions  of  the  Stability  and  Growth  Pact  because,  based  on  current  policies  and 
projections,  this  MTO  does  not  appear  to  take  sufficiently  into  account  the  implicit 
liabilities related to ageing, despite the debt being below the Treaty reference value. 

In 2011, the headline deficit stood at 0.6% of GDP, compared to  1.0% envisaged in 
the  2011  stability  programme.  This  outcome  was  mainly  due  to  a  better-than-expected 
starting  position  and  some  positive  revenue  surprises.  By  using  these  unexpected 
revenues  to  reduce  the  deficit,  the  government  implemented  part  of  last  year’s 
recommendation. 

For 2012, the programme projects a deficit of 1.5% of GDP, the same as in last year’s 
programme  (see  Annex  III).  The  negative  budgetary  impact  of  the  deterioration  of 
macro-economic  circumstances  compared  to  last  year's  projections  (0.4%  of  GDP)  is 
expected  to  be  offset  by  the  positive  base  effect  from  2011.  The  Commission  services' 
spring  forecast  expects  a  slightly  larger  deficit  of  1.8%,  due  to  a  faster  rise  in  most 
expenditure  categories.  A  temporary  crisis  tax  of  around  0.2%  of  GDP  introduced  in 
2011 was abolished in 2012.  

According to the programme, the deficit is expected to decrease in 2013 to 1.2% of 
GDP, supported by measures of around EUR 535 mn (1.2% of GDP). Roughly 2/3 of the 
impact  will  be  on  the  expenditure  side,  mainly  on  investment  expenditure  and  social 
transfers  (see  box  1).  The  main  measure  on  the  revenue  side  is  an  increase  in  the 
solidarity  tax  on  household  income  and  corporate  income.  The  Commission  services' 
spring forecast could not take into account the available information on this package and 
therefore expected a deterioration of the deficit to 2.2%.  

The  figures  for  2014  and  2015  in  the  programme  are  solely  projections  under  a  no-
policy-change scenario rather than targets. Under improving macroeconomic conditions, 
the deficit is projected to improve to 0.9% in 2014 (against 0.8% in the 2011 stability 
programme),  before  deteriorating  substantially  in  2015  (to  -1.8%).    However,  this 
deficit increase is entirely explained by changes in the European legislation on VAT on 
e-commerce,  which  from  2015  on  will  be  levied  in  the  country  of  residence  of  the 
consumer instead of the country of residence of the service provider. This would lead to 
an estimated revenue loss for Luxembourg of 1.2% of GDP. The programme states that  
if  Luxembourg  should  not  have  achieved  its  MTO  in  2015,  which  is  indeed  the  case 

6 Under a scenario including additional measures (planned, but not yet in place) Luxembourg is projected 
to increase emissions by 1.8 % compared to 2005, thereby still leading to a shortfall by 21.8 % relative to 
the target. 

8

 
 
                                                 
under the programme scenario, the government would take additional measures to put the 
country on track towards its MTO. 

Box 1. Main budgetary measures 

  Revenue 

Expenditure 

2013 

Increase in excise duties on tobacco and 

Reduction  in  operating  costs  of  the 

petrol (0.1% of GDP) 

administration (-0.1% of GDP) 

Increase  of  solidarity  tax  on  households 
and companies by 2% (0.2% of GDP) 

Introduction of a minimum corporate tax 

(0.1% of GDP) 

Reduction  of  expenditure  on  investment 

(-0.3% of GDP) 

Measures  to  limit  growth  of  public 
administration wages (-0.1% of GDP) 

Reductions in subsidies (0.0% of GDP) 

Reduction  in  social  benefits  in  kind  (-

0.2% of GDP) 

  Note: The budgetary impact in the table is the impact reported in the programme, i.e. by 
the national authorities. A positive sign implies that revenue / expenditure increases as a 
consequence of this measure. The degree of detail reflects the type of information made 
available  in  the  stability  or  convergence  programme  and,  where  available,  of  a 
multiannual budget. 

The  programme  scenario  for  2012  and  2013  is  very  close  to  the  Commission  services’ 
spring forecast. The medium-term deficit projections are made under a slightly optimistic 
growth scenario, with growth rates of 3.3% in 2014 and 4.1% in 2015. This is above the 
potential growth rate of 1.4% but below average pre-crisis growth rates (4.8% between 
2000  and  2007).  The  main  downside  risk  for  this  growth  scenario  lies  in  the  export 
performance of financial services, which would be heavily affected, should further unrest 
in  the  euro  area  hit  financial  markets.  An  additional  negative  shock  for  the  financial 
sector, which accounts for around a quarter of tax revenues, would heavily impact on the 
budgetary situation of the state.  

With  a  structural  balance  of  around  0.4%  of  GDP  in  2011,  Luxembourg  broadly 
reached its medium-term objective. However, the (recalculated) structural balance7 is 
expected  to  deteriorate  again  to  -0.2%  in  2012,  which  is  not  in  line  with  last  year’s 
recommendation. After an improvement by 0.3 pp in 2013, the structural balance will 
further deteriorate in 2014 and 2015. 

The growth rate of government expenditure, net of discretionary revenue measures 
in  2012  (4.85%  according  to  the  programme),  will  substantially  exceed  the  reference 
medium-term  rate  of  potential  GDP  growth  (1.76%).  In  2013,  the  growth  rate  of 
government  expenditure  (1.76%  according  to  the  programme)  will  exceed  the  lower 

7 Cyclically adjusted balance net of one-off and temporary measures, recalculated by the Commission 
services on the basis of the information provided in the programme, using the commonly agreed 
methodology. 

9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
reference rate8 which ensures an annual structural adjustment towards the MTO by 0.5% 
of  GDP  (0.63%).  According  to  the  programme,  net  expenditure  growth  will  remain 
dynamic in 2014-2015, with growth rates exceeding the 2012-2013 reference rate. 

Following  an  overall  assessment  of  the  Member  State’s  budgetary  plans,  with  the 
structural balance as a reference, including an analysis of expenditure net of discretionary 
revenue  measures,  a  significant  deviation  from  the  adjustment  path  towards  the 
MTO is to be expected from 2012 onwards. 

A low primary deficit coupled with a negative ‘snowball’ effect resulted in a decrease in 
the public debt level in 2011 to around 18% of GDP. However, the debt is expected to 
rise steadily in the coming years (see Annex IV), because the growth and inflation effect 
will not be able to offset the financing needs of the central government. The subsector of 
the  social  security  shows  over  the  whole  programme  period  a structural  surplus,  which 
can not be used to finance the central government deficit but which is transferred to the 
pension  reserve  fund.  At  the  end  of  2011,  this  reserve  fund  had  accumulated  assets 
equivalent to 27% of GDP, a higher amount than the gross public debt. Since the debt-to-
GDP  ratio  is  below  the  reference  rate,  the  debt  reduction  benchmark  is  not  applicable. 
Besides a higher-than-projected deficit, the main risks for the evolution of public debt 
in  Luxembourg  stem  from  guarantees  granted  to  the  banking  sector,  which  amount  to 
4.2% of GDP. 

Long-term sustainability 

The  long-term  change  in  age-related  expenditure  is  clearly  above  the  EU  average. 
The  initial  budgetary  position  adds  to  the  long-term  costs.  Under  a  no-policy-change 
assumption, debt would increase to 27.1% of GDP by 2020. The country has some time 
to  adjust  policies  that  affect  age-related  spending.  Moreover,  the  accumulated  public 
assets would reduce sustainability risks. In view of the deterioration of the fiscal position 
according to the programme update, full implementation of the programme would not be 
enough to put debt on a downward path by 2020. Given the very high projected increase 
in  age-related  expenditure,  emphasis  should  be  put  on  containing  long-term  public 
spending  trends.  Ensuring  sufficient  primary  surpluses  over  the  medium  term  and 
reforming the Luxembourg social security system, in particular the pension system so as 
to curb the projected substantial increase in age-related expenditure, would improve the 
sustainability  of  public  finances.  This  challenge,  already  identified  in  last  year’s 
recommendation, has been acknowledged by the government. On 20 January 2012, the 
Luxembourg government adopted a draft law to reform the pension system for both 
the private and the public sector. 

Box 2:  Pension reform in Luxembourg 

The  basic  principles  of  the  current  system  such  as  the  retirement  age  of  65  and  a 
possibility  for  early  retirement  at  57  or  60  will  be  maintained.  Job  holders  will  be 
encouraged to work longer on a voluntary basis, with additional pension rights for years 
worked after the age of 60 or a career of more than 40 years, instead of 55 and 38 years 
respectively  today.  The  new  calculation  method  will  be  implemented  only  gradually 
over  the  next  40  years.  The  automatic  adaptation  of  pension  benefits  to  real  wage 
evolution will be limited should pension expenditure exceed revenues (expected to occur 
as  from  2020).  This  corrective  mechanism  would  contribute  significantly  to  long-term 
sustainability  and  has  a  bigger  impact  than  the  changes  in  the  calculation  method  for 

8 Luxembourg reached its MTO in 2011 and as a consequence the standard reference rate is used for 2012. 
However, in 2012 Luxembourg will deviate from its MTO. Hence, a lower reference rate which ensures an 
annual structural adjustment towards the MTO is used for 2013. 

10

 
 
 
                                                 
pension benefits. Currently the contribution rate amounts to 24 % of the wage mass (up 
to  a  certain  ceiling),  with  employers,  employees  and  the  state  each  contributing  one 
third.  The  government  recognises  that  under  the  assumptions  used,9  even  after  the 
implementation  of  the  reform  this  contribution  rate  will  not  be  sufficient,  and  has 
alluded to the need for a gradual increase to 31 % in the long run in order to guarantee a 
balanced regime. This increase is not mentioned in the reform proposal, given that it is 
fixed separately for every coverage period, currently a period of seven years (after the 
reform,  the  contribution  rate  will  be  revised  every  10  instead  of  every  seven  years  in 
order to have a somewhat longer-term view), in such a way that the system is balanced. 
Finally, the reform makes it financially more attractive to combine an early retirement 
pension with a professional activity. 

After  the  gradual  introduction  of  a  new  calculation  method  by  2052  (see  box),  job 
holders would have to work on average three years longer to receive the same pension 
benefits.  This  is  only  a  modest  extension  of  working  life,  compared  to  the  very  long 
transitional  phase.  Moreover,  the  possibilities  for  early  retirement  are  left  broadly 
unchanged while replacement rates remain very high, making it not very attractive 
to  work  longer  than  the  minimum  required.  Hence,  a  significant  increase  in  the 
effective  retirement  age  on  top  of  the  ‘natural’  increase  due  to  the  changing  economic 
structure is not expected. 

In  order  to  guarantee  the  financial  viability  of  the  pension  system  after  this  reform,  a 
substantial increase in the contribution rate after 2020 would be necessary, in addition to 
the  inbuilt  moderation  of  the  adaptation  of  pensions  to  the  standard  of  living.10  This 
would entail a significant increase in the burden on labour supported by the future active 
population and consequently a loss of cost competitiveness. Given that replacement rates 
are  currently  very  high  (87 %  compared  to  between  42 %  and  49 %  in  neighbouring 
countries), even for high wage earners, which has only been possible thanks to the boom 
in employment over the last 30 years, some of the above-mentioned interventions (see 
box) on the level of pension benefits, such as a limitation of pension adjustments to 
real  wage  increases,  could  have  been  introduced  already  in  the  context  of  the 
current  reform  in  order  to  increase  pension  reserves  and  ease  the  burden  for  future 
generations. 

Furthermore, the reform fails to seize the opportunity to give a more prominent role  to 
the  highly  underdeveloped  second  and  third  pension  tiers.  It  would  have  been  a  good 
idea,  for  instance,  to  widen  the  well-accepted  but  unfortunately  only  inconsistently 
implemented  second  tier  to  all  employment  sectors,  including  public  services  and  the 
self-employed.  Such  systemic  change  could  have  gradually  supplemented  the  public 
pension benefits at their outer edge with a newly defined second pension pillar. 

9  The  assumptions  of  average  GDP  growth  of  3 %  and  employment  growth  of  1.5 %  underlying  the 
government’s  projections  may  prove  to  be  overly  optimistic.  In  the  past,  the  Luxembourg  economy 
recorded  very  high  growth  rates  (GDP  expanded  yearly  by  3.7 %  between  1992  and  2010,  while 
employment  increased  by  3.2 %  annually),  driven  by  the  expansion  of  the  financial  sector.  However,  as 
mentioned  above,  it  is  unlikely  that  the  financial  sector will  be  able  to  play  the  same  driving role  in  the 
future  and  thus  new  sources  of  growth  will  have  to  be  found  to  achieve  a  3 %  average  growth  rate. 
Moreover  the  authorities  assume  that  a  further  increase  in  the  share  of  non-residents  in  the  active 
population will support part of the burden of the ageing population. Although this is plausible in the near 
future, it looks optimistic over a longer-term horizon. 
10 This limitation of the adaptation of pensions to the standard of living will not affect the calculation of the 
initial pension level at the time of retirement, but only the subsequent adaptation to wage evolution during 
the pension period. 

11

 
 
 
                                                                                                                                                 
So while the increase in  pension  expenditure is expected to be  the  strongest  in  the 
EU  by  2050,  Luxembourg  has  opted  for  a  limited  and  very  gradual  reform.  This 
reform buys time for the Luxembourg pension system, but does not seem to constitute a 
sufficient guarantee of long-term sustainability. 

Fiscal framework 

Government  revenues  in  Luxembourg  are  particularly  volatile,  notably  because  of  the 
country’s  small  size  and  high  openness  and  because  of  the  economy’s  strong 
specialisation  in  the  financial  sector.  In  such  a  context,  a  fully-fledged  medium-term 
budgetary  framework  with  multi-annual  expenditure  ceilings  would  provide  guidelines 
for  smooth  revenue  and  expenditure  evolution  and  ensure  budgetary  discipline  in  the 
medium  and  long  term.  The  Minister  of  Finance  is  currently  preparing  a  reform  of  the 
budgetary procedure in Luxembourg. 

Tax systems 

Luxembourg’s  tax-to-GDP  ratio  is  broadly  in  line  with  the  EU  average  and  lower  than 
that  of  its  neighbouring  countries.  The  structure  of  the  Luxembourg  tax  system,  in 
terms  of  the  share  of  total  revenue  raised  by  the  different  taxes,  is  relatively 
favourable  to  growth.  Almost  one  third  of  tax  revenue  is  raised  from  consumption 
taxes. Both capital and labour taxation are among the lowest in the EU. 

There is room for improvement in greening the taxation system. In 2010 the share of 
environmental taxation stood at 6.4 % of total tax revenues compared to an EU average 
of  7.4 %.11  Most  revenue  comes  from  energy  taxation,  while  the  transport  (excl.  fuels) 
and  pollution/resources  components  play  a  minor  role.  Luxembourg  has  made  some 
efforts  in  recent  years  to  green  the  taxation  system.  The  annual  vehicle  tax  is  now 
calculated  as  a  function  of  CO2  emissions.  A  special  levy  on  transport  fuel  (the  Kyoto 
cent)  was  introduced  in  2007  to  contribute  to  emissions  reductions,  which  slightly 
reduces  the  price  gap  with  regard  to  the  neighbouring  countries.  There  is  still 
considerable scope for raising fuel and energy taxes. While the short-term effect would 
be  to  switch  fuel  purchases  back  across  the  borders,  there  would  be  a  net  gain  as  this 
would raise the effective price in the region as a whole. This might prove to be less costly 
for Luxembourg than reducing its domestic emissions in other ways. 

The  strong  inherent  bias  towards  corporate  debt  financing  and  generous  support 
measures for debt-financing of housing may entail a risk in terms of leverage for the 
relatively  small  Luxembourg  economy.  In  addition,  property  taxation  revenue  has  not 
kept up with the rental value of housing. A shift from a tax on real estate transactions to a 
recurrent tax on real estate could improve the functioning of the housing market. 

3.2. Financial sector 

Financial stability 

The  size  of  the  Luxembourg  financial  sector  is  very  large  compared  to  the  size  of  the 
economy.  Total  banks’  assets  as  a  percentage  of  GDP  declined  from  their  most  recent 
peak  in  September  2008  (3370 %  of  GDP)  to  a  low  of  2536 %  of  GDP  in  April  2011, 
remaining  nevertheless  very  high.  Fund  administration  constitutes  the  bulk  of 
Luxembourg’s  financial  industry.  Private  banking  is  its  second  pillar.  During  the  2008 
crisis these sectors did not produce any significant losses that would have forced the state 
to  rescue  banks  as  by  their  very  nature  these  areas  can  be  considered  quite  stable. 

11 European Commission, 2012, ‘Taxation Trends in the European Union’ (forthcoming). 

12

 
 
                                                 
Nonetheless,  the  state  participated  in  recapitalising  foreign-owned  banks,12  given  their 
systemic  importance  for  Luxembourg’s  economy,  even  though  the  bulk  of  losses 
occurred outside the country. The government also contracted guarantees for an amount 
of EUR 2.7 billion to the remaining Dexia group. 

Luxembourg’s banks’ capitalisation and profitability remain high in the context of 
good  and  stable  loan  book  quality.  Operational  results  have  stood  up  well  to  the 
difficult international environment. However, net profit fell by 24 % in 2011, because of 
provisions constituted for value adjustments of Greek bonds. The loan-to-deposit ratio 
stays  well  below  100 %  in  the  context  of  a  very  moderate  credit  expansion.  Sovereign 
risk remains very low in the Luxembourg banking sector and has even abated since 2009 
in  the  context  of  very  high  and  stable  private  and  external  debts.  No  Luxembourgish 
institution was below the required 5% core Tier 1 capital following the July 2011 EBA 
stress test nor required to comply with the higher minimum core Tier 1 capital ratio of 
9% of risk-weighted assets following the temporary recapitalisation plan decided by the 
European  Council  in  October  2011.  Under  the  Euro  Plus  Pact,  the  government  is 
committed  to  increasing  the  resilience  of  the  financial  sector.  Since  2011,  the 
government,  the  Central  Bank  of  Luxembourg,  the  Commission  de  Surveillance  du 
Secteur Financier and the Commissariat aux Assurances meet regularly in order to assess 
the  risks  to  which  the  financial  sector  could  be  exposed  and  in  order  to  exert  macro-
prudential supervision. 

Funding of the economy 

Lending  conditions  remain  restrictive  after  the  continuous  tightening  over  the  period 
2007-2009,  which  has  been  followed  by  a  more  stable  period.  Nevertheless  credit 
tightening has been less pronounced in Luxembourg than elsewhere in the euro area 
and small  and  medium enterprises continue to enjoy good conditions for access to 
finance. On the demand side credit to households has proved quite resilient and robust 
growth rates (around 8 % annually) were still being posted at the start of 2012. Lending 
for  house  purchase  does  not  seem  to  be  affected  by  the  financial  crisis.  Credit  for 
consumption  stabilised  over  2011.  After  a  long  period  of  contraction,  credit  to  non-
financial  corporates  has  shown  positive  growth  rates  since  mid-2011  but  remains  at  a 
very low level, especially for big loans. 

Diversification of the economy 

In  2010,  the  activity  of  the  financial  sector  as  a  whole  (including  insurance  and  fund 
industries) was estimated to account for 33 % of GDP, 11 % of employment and 25 % of 
fiscal revenues. In the 2011 Euro Plus Pact commitments, the Luxembourg government 
committed  to  pursue  efforts  to  diversify  the  structure  of  the  economy.  It  founded  a 
Luxembourg  Future  Fund  to  support  the  diversification  and  sustainable  development 
of the economy. The Fund will invest directly or via other funds in innovative small and 
medium enterprises in a start-up or development phase in technology sectors (ICT, Clean 
technologies …). The Luxembourg state will invest EUR 120 million in the Fund via the 
Société Nationale de Crédit et d’Investissement, and the European Investment Fund will 
contribute  another  EUR  30  million.  In  addition,  the  government  will  invest  in  health 
sciences and technology via an existing private fund. 

12 Following the restructuring of the Dexia Group, its Luxembourg subsidiary Dexia-BIL will be sold to a 
Qatari state investment fund. The Luxembourg state will acquire a minority share of 10 % because of the 
systemic role of Dexia-BIL in the Luxembourg economy. The country also participated in Fortis’ 
recapitalisation in 2008. 

13

 
 
                                                 
3.3. Labour market, education and social policy 

Luxembourg is characterised by strict employment protection legislation, especially 
as regards collective dismissals and temporary employment.13 Labour taxes are relatively 
low.  The  overall  employment  rate  in  Luxembourg  fell  slightly  from  70.7 %  in  2010  to 
69.8   %  in  2011,  which  is  just  above  the  EU  average  (68.6 %  in  2011).  The  female 
employment  rate  is,  at  61.9 %,  rather  low.  36 %  of  women  aged  20-64  who  have  a  job 
work only part-time (against 4.8 % of men). A particularity of the Luxembourg labour 
market  is  the  increasing  share  of  non-resident  workers,  currently  accounting  for 
around 42 % of total employment. Productivity levels are the highest in the EU. On the 
other hand, adjustment of employment in times of economic downturn is slow, resulting 
in a fall in apparent productivity. This is due to strict employment protection legislation 
as well as to labour hoarding by firms that are reluctant to lay off high-skilled workers 
because of their scarcity on the labour market.  

Responding to last year’s CSR on youth unemployment and commitments under the Euro 
Plus  Pact,  Luxembourg  took  a  number  of  relevant  measures  to  tackle  youth 
unemployment  but  so  far  these  have  been  only  partially  implemented.  The  National 
Employment Agency ADEM is undergoing a thorough reform designed to increase the 
effectiveness  and  quality  of  services  for  both  job  seekers  and  employers.  Accordingly, 
the  ADEM  would  simultaneously  provide  personalised  follow-up  to  jobseekers 
according  to  their  degree  of  employability  and  develop  close  relationships  with 
companies. Three quarters of the total budget for active labour market policies is spent 
on job incentives (against 24 % on average in the EU). On the other hand, Luxembourg is 
spending relatively little on vocational training (only 9 % compared to 43 % in the EU as 
a  whole).  The  Initial  Employment  Contract  and  the  new  Initial  Employment 
Contract-Practice enable young jobseekers to get their first experience of the labour 
market and compensate14 the employer for the jobseeker’s lack of experience. According 
to  a  first  assessment,  jobseekers  with  such  contracts  are  more  successful  in  their 
subsequent job search. 

Youth  unemployment  in  Luxembourg  is  often  linked  to  a  lack  of  skills  or 
qualifications.  The  vocational  education  system  is  currently  undergoing  a  reform  in 
order to bring jobseeker’s qualifications more in line with labour market demands. The 
ADEM ensures closer follow-up of early school leavers, in order to guide them to a new 
‘second  chance  school’,  launched  in  March  2011,  or  to  an  apprenticeship.  The 
government has increased temporarily the compensation for employers who supervise an 
apprentice studying for a Professional Competence Certificate from 27 % to 40 % of the 
remuneration.15 In order to promote measures to improve the transition of young people 
from  school  to  working  life,  an  information  platform  was  set  up  in  2011 

13 Temporary contracts are restricted to specific tasks and usually cannot be extended beyond 24 months. 
Trial periods are short (a maximum of six months) and notice must be given at least 24 days before 
dismissal. Compensation is available to employees in cases of unfair dismissal, though employees are 
rarely reinstated. For procedural irregularities in dismissal, at least one month’s compensation is usually 
granted, while for more serious irregularities compensation depends on the material impact on the 
employee. Collective dismissals by firms are limited to seven people within a 30-day period and to 15 
people within a 90-day period. In addition, collective dismissals require firms to negotiate a social plan 
with the relevant trade union or employee association within two weeks of the collective notice being 
given. Only once the social plan is concluded can individual notification of dismissal occur and only then 
after 75 days. 
14 EUR 16 million has been foreseen in the 2012 budget. 
15 Data on the impact of these contracts on job creation is not yet available. The modest increase in the 
number of these contracts could also be due to a substitution effect. 

14

 
 
                                                 
(www.anelu.lu).16  A  new  cooperation  platform  providing  guidance  services  and 
orientation (‘Maison de l’Orientation’) will be operational in 2012. The government has 
not yet conducted a thorough study on the difficulties faced by young people making the 
transition  from  school  to  working  life  which  had  been  announced  in  the  2011  national 
reform  programme.  Solutions  in  this  area  as  well  as  an  in-depth  study  to  highlight 
potential bottlenecks are essential to move the policy process on in the long run. 

Although  Luxembourg  has  clearly  taken  some  relevant  and  credible  steps  to  tackle  its 
relatively  high  youth  unemployment,  young  people  still  lack  support  to  facilitate  their 
integration  into  the  labour  market.  There  is  still  a  need  for  a  coherent  strategy, 
stronger  collaboration  with  municipalities  and  more  efficient  use  of  employment 
services. Young jobseekers would also benefit from more investment in training and 
education. 

In  2011,  Luxembourg  did  not  make  progress  towards  the  achievement  of  the  2020 
employment  target  of  73%.  The  employment  rate  is  particularly  low  for  older 
workers.  In  2009  the  effective  retirement  age  was  only  59  years  on  average,  a 
consequence  of  generous  early  retirement  schemes.  Hence,  the  financial  incentives  to 
extend  working  lives  as  envisaged  in  the  pension  reform  are  particularly  welcomed. 
However, the employability of older workers, including their skills, needs to be improved 
simultaneously.  A  job  retention  policy  that  has  been  set  up  aims  to  find  alternative 
solutions to redundancy (training, part-time work, change of job, loaning of manpower, 
etc.),  and  in  line  with  commitments  under  the  Euro  Plus  Pact  the  co-financing  rate  for 
lifelong  learning  has  recently  been  increased,  especially  for  older  workers.  The 
Commission welcomes the fact that barriers to continuing working beyond the retirement 
age or to combining a pension with some form of employment will be lowered. 

Luxembourg makes extensive use of labour migration and cross-border workers to fill 
gaps  in  the  national  labour  market.  No  particular  problems  have  been  reported  on  the 
recognition  of  qualifications  in  Luxembourg.  However,  the  requirement  for  lawyers  to 
have a knowledge of all three official languages (French, German and Luxembourgish) 
raises concern in so far as it appears to be a disproportionate barrier to establishment by 
lawyers from other Member States.17  

The  performance  of  Luxembourg’s  education  system  is  relatively  weak  when 
measured by PISA scores, but the multilingual system obscures Luxembourg’s true 
skill level in the test result. Nevertheless some students could benefit from focusing on 
fewer languages in order to complete their studies and concentrate more on sciences or 
vocational studies. Recent reforms of the school system give more responsibility to the 
schools,  increase  transparency  for  parents  and  introduce  feedback  instruments  for 
stakeholders.18 These reforms are currently being implemented so it is too early to assess 
their  impact.  In  addition,  new  guidance  procedures  will  be  implemented  as  from  2013, 
covering Cycle 4 of primary education to the lower secondary school classes.19 Various 

16  A  request  for  co-financing  of  a  larger  web  development  project  has  been  submitted  to  the  ESF.  The 
necessary budget for the national co-financing share has been earmarked in the 2012 budget. 
17 This barrier seems unnecessary to safeguard multilingualism in Luxembourg or the fundamental right of 
its citizens to use the three languages, which is guaranteed by the availability of multilingual lawyers and 
not  by  the  exclusion  of  lawyers  who  only  speak  the  language  of  law  (French)  and  limit  their  activities 
accordingly. The question is under legal examination by the Commission.  
18 For example the ‘Plan de Réussite Scolaire’ (PRS) describes the challenges the school wants to address, 
the measurable objectives defined, and the means to achieve these. 
19 The lower classes of secondary education and trade school serve as a transitional phase between primary 
school,  the  point  of  departure  for  formal  apprenticeships,  and  upper  classes  of  secondary  school.  The 
priority for the lower classes is to consolidate and prolong basic skills learned in primary school, while the 
upper classes aim to prepare students for professional life and higher education. 

15

 
 
                                                 
initiatives  aim  to  facilitate  the  schooling  of  children  with  a  migrant  background  in  the 
multilingual system. It is too early to assess the impact of these measures but they seem 
to point in the right direction in implementing the 2011 recommendation. 

With an early school leaving rate of 7.1%, Luxembourg has reached its target and is 
considering  a  more  ambitious  objective.  However,  early  school  leaving  remains  a 
problem  among  the  migrant  population.  For  children  where  none  or  only  one  of  the 
official languages is spoken at home, gaining proficiency in all three official languages is 
difficult. A list of names of early school leavers drawn up on a monthly basis is sent to 
regional centres of the Local Youth Action group to determine why they dropped out and 
to  help  them  to  find  a  training  programme  or  integrate  them  into  the  labour  market. 
Upper  secondary  attainment,  standing  at  73.4%  in  2010,  is  below  the  EU  average  of 
79 %. This can be partly explained by the strong net migration, with many young adults 
that have been educated outside the national education system. The tertiary attainment 
rate  according  to  the  Eurostat  methodology  is,  at  46.1%  in  2010,  above  the  EU 
target of 40%. However, the tertiary attainment of the resident population is lower, 
currently  about  30%,  20  despite  the  strong  demand  for  workers  with  tertiary 
qualifications. In its 2012 NRP, Luxembourg adopts the European methodology – thus 
including non-resident workers –  but proposes to put the target at 66% instead of 40%. 
Luxembourg  has  taken  several  measures  to  increase  the  number  of  students  embarking 
on higher education studies: allowing validation of prior learning and experience giving 
access to university studies; offering more varied higher education studies; establishing a 
link  between  higher  education  programmes  and  companies’  needs  in  order  to  promote 
employability;  offering  financial  support  to  all  students  whether  they  are  studying  in 
Luxembourg  or  outside  the  country;  tutoring  of  students  at  the  University  of 
Luxembourg.  The  reform  of  the  vocational  education  and  training  system  will  provide 
more  opportunities  to  bridge  the  gap  between  vocational  education  and  training  and 
higher education. 

Adult participation in lifelong learning has increased over the last few years and reached 
13.4%  in  2010.  Greater  adult  participation  in  lifelong  learning  is  needed  to  tackle 
the country’s structural unemployment since residents are facing competition from 
a large pool of often highly skilled potential workers from neighbouring countries. 
A particular focus on the population aged 55-64 with a low education level is needed. In 
November 2011, the National Agency for the European Education and Lifelong Learning 
programme (ANEFORE) launched the project S3L to investigate how lifelong learning 
is perceived in Luxembourg. The results will feed into a White Paper on future strategies. 
From 2012 on, lifelong learning in the private sector will be co-financed by the state at a 
rate of 20% instead of 14.5% (35% for young unskilled workers and older workers), in 
line with Euro Plus Pact commitments. 

The  rate  of  people  at  risk  of  poverty  or  social  exclusion  before  social  transfers 
increased from 44% in 2009 to 45% in 2010, confirming a trend since 2007. On the 
other hand, the rate after social transfers decreased from 4.9% in 2009 to 4.5% in 2010, 
after  a  strong  increase  in  2009.  The  in-work  poverty  rate  has  increased  steadily  since 
2007 and is, at 10.6% in 2010, higher than the EU average of 8.5%. Particularly worrying 
is the in-work poverty rate for single parents (40%), ranking second highest in the EU. 
Similarly,  the  in-work  poverty  rate  for  temporary  workers  (20%)  is  also  among  the 
highest in the EU. 

20 The Eurostat figure is blurred by the high share of (high-skilled) non-residents on the labour market and 
thus  no  indication  of  the  quality  of  the  national  education  system.  Therefore  the  country  previously 
determined  the  tertiary  education  attainment  rate  based  on  resident  population  and  not  on  the  working 
population as Eurostat does. 

16

 
 
                                                 
In  the  2012  national  reform  programme,  Luxembourg  has  finally  set  a  national 
poverty  target  which  aims  to  reduce  the  number  of  people  at  risk  of  poverty  or 
social exclusion by 6000 in 2020 (about 1.2% of the population), which would bring the 
risk  of  poverty  or  social  exclusion  back  to  its  2007  level.  Several  social  inclusion 
measures  have  been  introduced,  such  as  awareness  actions  concerning  childcare 
possibilities and childcare vouchers, and more activation of minimum income claimants 
(although there is no clear tendency yet in the activation rates). As most of the measures 
were implemented recently, it is difficult to assess their impact for the time being. The 
Luxembourg government decided in  February 2011 to set up working groups to devise 
additional measures in order to fight poverty and social exclusion: these include ways to 
further  increase  childcare  places  availability,  and  measures  to  improve  educational 
performance and ensure a better transition from school to work. The situation of specific 
groups at risk, such as immigrants and single-parent families, needs to be addressed. The 
very  high  housing  costs  in  Luxembourg  pose  a  particular  social  problem.  House  prices 
have increased as higher demand, boosted by tax distortions, has pushed against supply 
constraints. The government will draw up a national integrated strategy in collaboration 
with non-governmental organisations and the communes to reduce homelessness. 

3.4. Growth and competitiveness structural measures 

The Luxembourg economy is characterised by high growth rates and a high productivity 
level.  Luxembourg  thus  occupies  a  favourable  position  with  respect  to  overall 
competitiveness.  However,  Luxembourg  has  lost  its  price  competitiveness  over  the 
last decade (with unit labour costs rising faster than in the neighbouring countries) 
due  to  high  wage  increases  coupled  with  low  productivity  growth.  Wages  and 
benefits are adapted to inflation through a mechanism of automatic indexation each time 
a reference index rises by 2.5 %. 

Cost competitiveness 

The  Luxembourg  authorities  took  steps  to  implement  the  recommendation  on 
competitiveness by adjusting the system of wage indexation. The national Parliament 
adopted a law to modify temporarily the automatic indexation of wages in order to 
increase  the  competitiveness  of  the  Luxembourg  economy.  The  next  automatic 
indexation of wages, which would have occurred in March 2012, has been postponed to 
October  2012.  Moreover,  until  2014,  at  least  12  months  should  elapse  between  each 
indexation  step  of  2.5%.  With  the  introduction  of  this  minimum  interval,  wages  and 
benefits  will  no  longer  be  fully  adapted  to  the  cost  of  living  in  the  event  that  inflation 
exceeds  2.5%.  This  so-called  modulation  of  the  wage  indexation  system  prevents  an 
upward  spiral  of  cost  and  price  increases  and  will  have  a  temporary  effect  on  cost 
competitiveness, especially in times of high inflation. 

From  2015  on,  the  automatic  indexation  will  again  be  applied  in  the  normal  way. 
However, the counter for the next automatic wage indexation will be set at zero before 
returning  to  the  normal  system21.  As  a  consequence,  some  of  the  gains  in  cost 
competitiveness could be permanent. In addition, alcohol and tobacco would be taken out 
of  the  index,  and  increases  in  fuel  prices  (except  for  heating)  will  only  be  taken  into 
account  up  to  a  certain  cap.  The  cap  on  the  effect  of  oil  price  increases  on  indexation 
could temper the second-round effects of imported inflation and therefore avoid negative 
upward  inflation  spirals.  The  government  has  no  intention  of  touching  upon  the 
principle of wage indexation in itself. 

21 Because of this, inflation occurring during the period 2012-2014, which will not have been compensated 
by  the  maximum  of  three  indexation  steps,  will  not  count  for  the  next  automatic  wage  indexation  after 
2014. 

17

 
 
                                                 
The Commission notes that this modulation is only temporary and that the objective of 
the recommendation has only partially been fulfilled. In order to adequately respond to 
the 2011 recommendation, Luxembourg should also take steps to reform the system 
in a more permanent way. Certainly, Luxembourg’s productivity is very high, but the 
room  for  manoeuvre  in  terms  of  productivity  gains  is  getting  smaller.  Therefore,  it  is 
essential  to  ensure  the  competitiveness  of  Luxembourg  by  limiting  the  growth  of  unit 
labour costs. 

Internal market and competition 

For directives relating to the internal market, Luxembourg posted an increase in its 
current  transposition  backlog:  1.4%  in  November  2011  as  opposed  to  1.1%  in  May 
2011.22  Half  of  the  total  number  of  its  outstanding  directives  (10  out  of  20)  are  in  the 
areas  of  environment  and  transport.  Regarding  competition  in  network  industries, 
Luxembourg belongs to the group of Member States that has been granted an additional 
two years to liberalise its postal market, i.e. by 31 December 2012. A draft law provides 
in  particular  for  the  possibility  to  finance  universal  service  via  profits  made  in  the 
telecom  sector.23  In  2011  a  price  observatory  was  created  in  order  to  guarantee  more 
transparency  on  consumer  price  developments.  In  October  2011,  the  two  existing 
competition  bodies  were  merged  into  one  single  body,  named  ‘the  Council’,  with 
increased powers. The Council has to be consulted on any draft law or regulation which 
may affect competition. 

Professional  services  were  highly  regulated  in  Luxembourg  but  recent  legislation 
implementing  the  Services  Directive  adopted  in  September  2011  has  considerably 
reduced  the  regulatory  burden.  One  of  the  most  important  changes  is  the  new  law 
regulating  access  to  the  professions  of  craftsmen,  traders,  retailers,  industrialists  and 
other  liberal  professions.  By  removing  obstacles  consisting  of  numerous  formalities, 
Luxembourg has opened up the market and made access easier for service providers from 
other Member States. However, some restrictions in the services sector seem to remain. 
Some measures have been identified regarding requirements where the Directive leaves a 
margin of appreciation to Member States to streamline the regulatory environment for the 
establishment  of  providers(e.g.  quantitative  restriction  on  places  selling  alcoholic 
beverages,  ban  on  having  more  than  one  establishment,  and  shareholding  requirements 
for  lawyers).  In  addition,  it  is  not  always  clear  whether  authorisations  applied  to 
incoming service providers can be justified for one of the four reasons recognised by the 
Directive (public policy, public security, public health or protection of the environment) 
and whether they are proportionate.24  

In line with commitments related to the Euro Plus Pact to foster competitiveness, the 
Luxembourg government has kept social contributions stable, neutralised the effect of an 
increase in minimum wages on labour costs and kept public investment at a high level. 

22 According, respectively, to the official results presented in ‘Making the Single Market deliver — Annual 
governance check-up 2011’ (cut-off date: 10 November 2011) and to the ‘Internal Market Scoreboard’ No 
23 (cut-off date: 10 May 2011). 
23 The postal incumbent, EPT, is one of the few remaining operators in the EU still combining telecom and 
postal services under the same company. 
24 For instance the requirement to obtain an authorisation in the education sector, e.g. for summer courses, 
as well as the need for an authorisation for providers carrying out technical studies and verifications in the 
field of the environment. 

18

 
 
 
                                                 
Research and innovation 

Luxembourg’s  R&D  intensity  is,  at  1.6 %  of  GDP  in  2010,  below  the  intermediate 
target of 2.0% of GDP to be reached by 2015 and the target of 2.6% of GDP by 2020. In 
contrast  to  private  R&D  spending,  public  spending  has  increased  steadily,  even  if  it 
remains relatively low, rising from 0.12% in 2000 to 0.48% in 2010. In the 2012 budget, 
EUR  280  million  or  0.66%  of  GDP  have  been  foreseen.  Luxembourg  is  ranked  in  the 
category  of  innovation  followers  with  innovation  performance  above  the  EU-27 
average25.  Luxembourg  has  made  substantial  efforts  to  develop  research  and 
innovation  policies  and  has  made  good  progress  on  several  fronts  in  its  transition 
towards  a  more  knowledge-intensive  economy,  for  example  by  strengthening  links 
between higher education and businesses.  

Given  the  high  unit  labour  costs  in  Luxembourg,  increasing  the  added  value  of 
goods  and  services  would  be  the  only  way  to  safeguard  the  competitiveness  of  the 
productive  sector.  However,  while  the  scale  and  scope  of  the  reforms  since  2003  are 
considerable and the elements for a strategic R&I framework are in place, a number of 
challenges  remain.  The  domestic  absorption  capacity  of  R&I  results  is  limited. 
Collaboration  between  research  bodies  and  companies,  notably  SMEs,  could  be 
strengthened.  Also  the  entrepreneurial  culture  could  be  further  improved.  Furthermore, 
the list of strategic priorities in the Luxembourg 2020 Strategy seems not to be selective 
enough  to  allow  critical  mass  to  be  gained  in  all  the  domains  identified.  The  national 
strategy should therefore focus on a more limited number of priorities while efforts are 
stepped up to create the framework conditions favourable to the development and growth 
of  innovative  firms.  Eco-innovation  is  one  of  the  declared  priority  policies  of  the 
government but the share of companies reporting positive effects of innovation on their 
material  and  energy  efficiency  is  still  below  the  EU  average.  Taking  into  account  the 
stage of development of R&D policies, close attention should be given to the evaluation 
process and to the implementation of evaluation results. 

Energy and environment 

In  order  to  reach  its  climate  and  energy  target,  Luxembourg  is  likely  to  need  to 
either design additional policies reducing greenhouse gas emissions, or to make use 
of costly flexibility mechanisms. The road sector, which accounts for 60 % of all CO2 
emissions from fuel combustion, represents the most important source of emissions and 
possesses  a  large  emission  reduction  potential.  The  share  of  cars  in  the  modal  split  of 
passenger  transport  is,  at  84%,  rather  high  (2009),  requiring  actions  to  promote  public 
transport.  The  fiscal  losses  due  to  tax  subsidies  of  company  cars  are  above  the  EU 
average and amounted to 0.6% of GDP in 2008. In January 2012, the excise tax on diesel 
increased from EUR 320 per 1000 litres to EUR 330.26 The price of petrol remains one of 
the  lowest  in  the  EU,  inducing  ‘fuel  tourism’27  and  negative  externalities  in  terms  of 
pollution and congestion. Measures to encourage more people to use public transport and 
to better manage traffic flows e.g. through accelerated deployment of intelligent transport 
systems28  could  contribute  to  a  reduction  of  congestion  and  hence  to  an  increase  in 
economic productivity. Subsidies for the purchase of electric cars have increased, while 
on  the  other  hand  the  CO2  thresholds  for  subsidies  for  the  purchase  of  low-emission 
vehicles  are  being  lowered.    The  government  adopted  a  ‘climate  package’  in  May 
2011  and  announced  a  sustainable  transport  strategy  in  April  2012.  Both  plans 
contain  a  large  number  of  measures  that  aim  to  reduce  transport-related  emissions,  but 

25 According to the Innovation Union Competitiveness Report 2011 
26 Which corresponds to the minimum level under Council Directive 2003/96/EC. 
27 Cross-border purchases of diesel and petrol accounted for 75 % of sales in 2010. 
28 The timely transposition of Directive 2010/40/EU may in this respect be helpful. 

19

 
 
                                                 
fail  to  address  the  root  problem  of  low  fuel  prices.  Luxembourg  has  set  an  energy 
savings target in end-use consumption of 9% by the end of 2016 compared to the annual 
average consumption between 2001 and 2005. According to the second National Energy 
Efficiency  Action  Plan  (September  2011),  the  intermediate  target  of  3%  for  2010  has 
been achieved. The 2016 target could be reached, assuming timely implementation of all 
the measures that are so far proposed and planned. Luxembourg will continue to support 
the  upgrading  of  old  buildings  and  construction  of  energy-efficient  new  buildings.  In 
addition,  proposed  measures  include  financial  instruments  aimed  at  better  energy 
efficiency  of  dwellings  and  financial  support  to  households,  municipalities  and 
companies that resort to energy from renewable sources and foster energy efficiency. On 
the  other  hand,  energy  products  benefit  from  a  reduced  VAT  rate,  which  constitutes  a 
negative fiscal incentive. 

Starting  from  0.9%  in  2005,  the  share  of  renewable  energy  in  final  energy 
consumption  had  increased  to  2.7%  by  2009  but  there  is  a  long  way  still  to  go  to 
reach the legally binding target of 11% by 2020. Luxembourg does not appear to be 
able  to  meet  its  renewable  energy  target  through  domestic  measures.  Therefore,  the 
timely  implementation  of  cooperation  mechanisms  (for  an  amount  estimated  by 
Luxembourg to be between 0.5 and 3.5 TWh) with other Member States will most likely 
be necessary. Luxembourg imports the bulk of its electricity and is totally dependent on 
imports  for  gas.  Further  interconnections  with  neighbouring  countries  could  foster  the 
import of electricity from renewable sources and enhance security of supply for gas. Also 
the use of renewable energy in the transport sector is lagging behind: in 2010, the share 
of renewable energy (mainly biofuels) in all energy consumed in the transport sector was 
merely 1.6 %, the same as in 2007, and still far away from the 2020 target of 10%. 

Regarding  resource  efficiency,  Luxembourg  continues  to  have  the  world’s  highest 
ecological  footprint  per  inhabitant.29  Although  there  was  a  slight  reduction  in 
municipal waste generation between 2008 and 2010, it remains considerably higher than 
the EU average (678 kg/y/inhabitant compared to around 487 kg on average). The NRP 
does not mention any new measures to improve resource efficiency in Luxembourg. Full 
implementation  of  the  existing  European  waste  legislation  could  create  more  than  200 
additional jobs and increase the annual turnover of the sector by over EUR 24 million. 
Moving  forward  towards  eliminating  landfill  and  limiting  energy  recovery  to  non-
recyclable  waste  could  even  create  in  total  over  400  additional  jobs  and  increase  the 
annual  turnover  of  the  waste  sector  by  EUR  45  million.  Public  spending  on  R&D  in 
energy and environment as a percentage of GDP is below the EU average. 

3.5. Modernisation of public administration 

Public  administration  reform  is  in  preparation,  particularly  with  a  view  to 
increasing  the  efficiency  of  public  services.  Luxembourg  generally  ranks  well  in 
surveys  of  the  administrative  burdens  of  the  tax  system.  Despite  below-average 
availability  (70 %  for  citizens  and  75 %  for  businesses),  the  use  of  e-government 
services  by  citizens  and  enterprises  is  one  of  the  highest  in  Europe  (67 %  and  90 % 
respectively).  Public  procurement  directives  have  been  implemented  in  national 
legislation. Contracts below the thresholds are subject to specific procedures with lighter 
requirements. Information available on the actual application of the public procurement 
rules  or  of  the  national  system  of  remedies  is  scarce  and  does  not  allow  definite 
conclusions to be drawn. A national procurement portal where publication of tenders is 
mandatory  provides  for  wide  dissemination  of  procurement  opportunities  to  potential 

29 One major reason for this extremely high footprint is the above-mentioned ‘fuel tourism’ and associated 
greenhouse gas emissions. 

20

 
 
                                                 
tenderers and also for the electronic download of tender documents. It does not provide 
any e-submission functionality. 

Poor performance of Luxembourg as regards time required to start a business (19 days in 
2011)  is  balanced  by  a  high  enterprise  survival  rate  after  two  years,  which  places 
Luxembourg in third position among the EU Member States. Under the Euro Plus Pact, 
the government is committed to reinforcing structural competitiveness by improving the 
business  environment  through  administrative  simplification  and  better  infrastructure. 
New  legislation  adopted  on  13  September  2011  simplified  administrative  procedures 
for  the  development  and  operating  conditions  of  classified  establishments,  mainly  by 
introducing tacit authorisation and obliging administrations to respect specific deadlines. 
The legislation transposing the Services Directive also simplifies in a horizontal manner 
the processes and documents required from service providers. A Single Contact Point is 
operational  in  French,  German  and  English.  Its  functionality  is  growing,  while  the 
availability of more online procedures could still be improved. 

21

 
 
4.  OVERVIEW TABLE 

2011 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

CRS  1:  Take  advantage  of  the  improving 
cyclical conditions, strengthen the fiscal effort 
and  use  unexpected  additional  revenue  in 
order to further reduce the headline deficit and 
reach the medium-term objective in 2012. 

In 2011, the headline deficit stood at 0.6% of 
GDP, compared to 1.0% envisaged in the 2011 
stability  programme.  This  better  outcome  was 
mainly  due  to  a  better-than-expected  starting 
position  and  some  positive  revenue  surprises. 
By  using  these  unexpected  revenues  to  reduce 
the deficit, the government implemented part of 
last year's recommendation. 

For  2012,  the  programme  projects  a  deficit 
of  1.5%  of  GDP.  The  Commission  services' 
spring  forecast  expects  a  slightly  larger  deficit 
of 1.8%, due to a faster rise in most expenditure 
categories.  Measures  have  been  proposed  to 
curb  the  deterioration  of  public  finances  in 
2013. 

With  a  structural  balance  of  around  0.4%  of 
GDP in 2011, Luxembourg broadly reached its 
medium-term  objective.  However,  following 
an  overall  assessment  of  the  Member  State’s 
budgetary plans, with the structural balance as a 
reference,  including  an  analysis  of  expenditure 
net  of  discretionary  revenue  measures,  a 
significant  deviation  from  the  adjustment 
path  towards  the  MTO  is  to  be  expected 
from 2012 onwards. 

the 

that  will 

CSR  2:  Propose  and  implement  a  broad 
pension  reform 
long-term 
to  ensure 
sustainability  of  the  pension  system,  starting 
the 
with  measures 
participation 
in 
particular  by  discouraging  early  retirement. 
With a view to raising the effective retirement 
age,  measures  such  as  a  link  between  the 
statutory  retirement  age  and  life  expectancy 
could be considered. 

rate  of  older  workers, 

increase 

in 

reform  builds 

the  government 
On  20  January  2012, 
proposed  a 
law  to  reform  the  pension 
system. The reform should be adopted in 2012. 
The 
some  corrective 
mechanisms  in  case  the  financial  situation  of 
the  system  evolves  adversely  and  contains 
adaptations  to  the  very  generous  calculation 
method  for  benefits.  No  measures  have  been 
proposed to link the statutory retirement age to 
life  expectancy  and  the  possibilities  for  early 
unchanged. 
retirement 
Moreover,  the  reform  will  be  phased  in  over  a 
very long time.  

broadly 

remain 

Overall,  Luxembourg  is  taking  steps  in  the 
right direction, but the reform does not seem 
to  constitute  a  sufficient  guarantee  for  the 
long-term sustainability of the system.  

22

 
 
 
 
CSR  3:  Take  steps  to  reform,  in  consultation 
with  social  partners  and  in  accordance  with 
national  practices, 
the  system  of  wage 
bargaining and wage indexation, to ensure that 
wage  growth  better  reflects  developments  in 
labour productivity and competitiveness. 

In January 2011, a law was adopted to limit 
temporarily  the  application  of  the  automatic 
wage  indexation  system  between  2012  and 
2015 in order to increase the competitiveness of 
the Luxembourg economy. However, besides a 
possible  modification  of  the  reference  index, 
the  government  has  not  announced  any  plans 
for  a  permanent  revision  of  the  wage-setting 
system  to  ensure  that  wage  growth  reflects 
labour  productivity  and 
developments 
competitiveness.  While 
Luxembourg’s 
productivity is currently very high, the room for 
manoeuvre  in  terms  of  productivity  gains  is 
getting  smaller.  A  permanent  revision  of  the 
wage-setting system, in consultation with social 
in  accordance  with  national 
partners  and 
the 
practices, 
competitiveness  of  the  Luxembourg  economy 
in the longer term. 

is  necessary 

to  preserve 

in 

to 

CSR  4:  Take 
reduce  youth 
steps 
unemployment  by  reinforcing  training  and 
education  measures  aimed  at  better  matching 
young  people’s  qualifications 
labour 
demand. 

to 

A  series  of  measures  in  the  area  of  education 
and  training  have  been  adopted  in  order  to 
ensure  better  matching  between  the  skills  of 
young  people  and  the  needs  of  the  labour 
market.  Luxembourg  has  clearly  taken  some 
its  relatively  high  youth 
steps 
unemployment,  but  there  is  still  a  need  for  a 
coherent  strategy,  stronger  collaboration  with 
municipalities,  more 
of 
employment  services,  and  more  investment  in 
training and education.  

efficient 

tackle 

use 

to 

Euro Plus Pact (national commitments and progress) 

Competitiveness 

1. Keep social contributions stable during 
current government term. 

2. Neutralise effect of increase in minimum 
wage (01.01.2011) on labour costs. 

3. Keep public investment at its current high 
level. 

4. Improve the business environment through 
administrative simplification and better 
infrastructure. The government is committed 
to reducing formalities required for companies 
to obtain permits and to dealing with them 
more speedily. 

Luxembourg  has  fully  implemented  its  EPP 
commitments related to competitiveness. 

to 

(EUR  25 million) 

No increase in social contributions is currently 
planned.  The  impact  of  an  increased  minimum 
wage  in  January  2011  has  been  offset  by 
allocating  an  amount  equivalent  to  its  overall 
cost 
the  Employers 
insurance fund. The same transfer is foreseen in 
the 2012 budget and the government intends to 
do the same until 2015, after which the measure 
will  be  assessed.  The  2012  draft  budget  keeps 
public investment at its current high level. New 
legislation  adopted  on  13  September  2011 
simplified  administrative  procedures  for  the 
development  and  operating  conditions  of 
particular 
classified 
introducing  tacit  authorisation  and  obliging 
administrations to respect specific deadlines.  

establishments, 

in 

Employment 

1. Reform thoroughly the employment 
administration. 

2. Increase co-financing rate for lifelong 

Luxembourg  has  partially  implemented  its 
EPP commitments related to employment. 

On  15  December  2011, 
the  Luxembourg 
Parliament  adopted  a  law  on  the  reform  of  the 
employment  administration  ADEM  in  order  to 

23

 
 
 
 
 
learning in the private sector. 

3. Keep social contributions stable during 
current government term. 

4. Neutralise effect of increase in minimum 
wage (01.01.2011) on labour costs. 

Financial stability 

Increase  the  resilience  of  the  financial  sector 
and pursue efforts to diversify the structure of 
the Luxembourg economy. 

improve  the  follow-up  of  jobseekers.  From 
2012 on, lifelong learning in the private sector 
will  be  co-financed  by  the  State  at  a  rate  of 
20 % 
instead  of  14.5 %  (35 %  for  young 
unskilled  workers  and  older  workers).  Social 
contributions  have  not  been  increased  and  the 
increase  in  the  minimum  wage  has  been 
compensated.  

The  financial  stability  commitments  are 
being fully implemented. 

to  support 

The  Luxembourg  government  has  founded  a 
Luxembourg  Future  Fund 
the 
diversification  and  sustainable  development  of 
the  Luxembourg  economy.  The  Luxembourg 
State will invest EUR 120 million in the Fund, 
and  EIF  will  contribute  another  EUR  30 
million. In addition, the government will invest 
in  health  sciences  and  technology  via  an 
existing private fund. 

Europe 2020 (national targets and progress) 

Employment target rate: 73 % 

R&D  target:  2.3 %-2.6 %  of  GDP  (of  which 
1.5 % to 1.9 % for the private sector and 0.7 % 
to 0.8 % for public spending) 

Energy  efficiency  target  —  reduction  in 
primary  energy  consumption  by  2020  (in 
Mega tonnes oil equivalent): 0.20 Mtoe 

Greenhouse gas emissions target:- 20 % 
compared to 2005 emissions (from sources not 
covered by the Emissions Trading System) 

The employment rate increased from 70.4 % in 
2009 to 70.7 % in 2010, but decreased again to 
69.8 %  in  2011.  Hence,  no  progress  has  been 
made towards achievement of this objective. 

the 

Gross  domestic  expenditure  on  R&D  has  been 
broadly  stable  over 
last  decade  and 
amounted  to  1.63 %  of  GDP  in  2010.  Public 
spending  has  increased  steadily,  even  if  it 
remains  relatively  low,  rising  from  0.12  %  in 
2000  to  0.48  %  in  2010.  In  the  2012  budget, 
EUR  280  million  or  0.66%  of  GDP  has  been 
earmarked.  Recent  reforms  have  encouraged 
public-private  partnership  and  increased  the 
financial  support  for  R&D  for  companies. 
Some  progress  has  been  made 
towards 
achieving this objective. 

The  energy  efficiency  objectives  are  set 
according 
to  national  circumstances  and 
national  formulations.  As  the  methodology  to 
express the 2020 energy consumption impact of 
these objectives in the same format was agreed 
only recently, the Commission is not yet able to 
present this overview. 

the  achievement  of 

Greenhouse  gas  emissions  not  covered  by  the 
ETS  were  reduced  by  5 %  between  2005  and 
2010.  Therefore  progress  has  been  made 
target. 
towards 
However,  according  to  latest  2020-projections 
based on existing measures, emissions will rise 
by  9%  compared  to  2005.  Luxembourg  is 
therefore expected to fall short of its emissions 
target  by  29  percentage  points.  Thus,  more 
efforts will be necessary in order to achieve the 
target. 

the 

24

 
 
 
 
 
Renewable energy target: 11 % 

The share of renewable energy sources in final 
energy  consumption  in  Luxembourg  was  only 
2.7 % in 2009, and Luxembourg has not met its 
2011/2012  interim  renewable  energy  target. 
Luxembourg does not appear to be able to meet 
its  renewable  energy  target  by  2020  through 
domestic measures. 

Poverty and social exclusion: reduction of 
the number of people threatened  by poverty or 
social exclusion by 6000 in 2020 

Education and training 

Early school leavers in %: < 10 % 

Tertiary education in %: >40 % 

social 

exclusion  before 

Luxembourg  set  a  national  poverty  target  in 
2012.  The  rate  of  people  at  risk  of  poverty  or 
transfers 
social 
increased  from  44 %  in  2009  to  45 %  in  2010 
(STATEC), confirming a trend since 2007. On 
the  other  hand,  the  rate  after  social  transfers 
decreased from 4.9 % in 2009 to 4.5 % in 2010, 
after a strong increase in 2009. The situation of 
specific groups at risk, such as immigrants and 
single-parent families, needs to be addressed. 

Luxembourg  has  reached  its  target  with  an 
early school leaving rate below 10 %. 

Early  leavers  from  education  and  training 
(percentage  of  the  population  aged  18-24  with 
at  most  lower  secondary  education  and  not  in 
further  education  or  training)  stood  at  7.7 %  in 
2009 and 7.1 % in 2010. However, early school 
the  migrant 
leaving  remains  high  among 
population. 

Tertiary educational attainment stood at 46.6 % 
in  2009  and  46.1 %  in  2010  according  to  the 
Eurostat  methodology,  well  above  the  EU 
benchmark.  However,  the  figure  is  blurred  by 
the  high  share  of  (high-skilled)  non-residents 
on the labour market and thus no indication of 
the  quality  of  the  national  education  system. 
Tertiary attainment of the resident population is 
currently  about  30 %,  below  the  EU  target  of 
40 %,  despite  the  strong  demand  for  workers 
with  tertiary  qualifications.  According  to  the 
2012  NRP,  Luxembourg  is  to  increase  the 
national target to 66 % (in conformity with the 
European benchmark). 

25

 
 
 
 
 
5.  ANNEX 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

Table I. Macroeconomic indicators 

1995-
1999

2000-
2004

2005-
2008

2009

2010

2011

2012

2013

4.8
-0.8
1.1
5.1
2.7
21.4
32.1

2.8
7.2
43.0
43.1
40.3
0.4

4.2
2.2
2.8
3.1
3.1
21.9
33.2

2.7
6.3
54.7
43.0
40.3
0.3

4.4
2.4
3.4
3.9
4.6
20.3
30.4

2.0
8.3
51.4
40.4
38.4
0.2

-5.3
-4.2
0.0
-5.1
5.1
19.1
23.6

-0.8
14.8
55.5
42.2
43.0
0.4

2.7
-2.7
2.8
5.9
4.6
18.4
26.3

-0.9
19.1
50.0
41.6
42.4
0.4

1.6
-2.2
3.7
4.4
4.8
19.0
27.8

-0.6
18.2
n.a
41.4
42.0
0.5

1.1
-2.4
3.0
2.6
5.2
20.0
26.1

-1.8
20.3
n.a
41.9
43.6
0.5

2.1
-1.7
2.0
2.3
5.9
20.1
26.4

-2.2
21.6
n.a
41.8
44.0
0.6

n.a

n.a

0.8

-1.0

n.a

n.a

n.a

n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
27.8

n.a
n.a
n.a
27.4

n.a
n.a
n.a
n.a
n.a
n.a

3.2
n.a
32.4
n.a
n.a
n.a

n.a
n.a
29.9
n.a
n.a
n.a

-252.7
336.9
n.a
n.a

-258.7
82.0
9.0
32.4

-160.0
26.2
13.0
33.7

1.9
94.4
26.7
1.4
14.6
5.4

n.a
82.4
n.a
n.a
n.a
n.a

0.6
73.9
25.6
1.5
12.6
4.0

Net financial assets, non-financial corporations
Net financial assets, financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non-tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade in goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between actual and potential gross domestic product at 2000 market prices.
2 The indicator for domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two 
weeks. The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

7.1
-215.4
31.2
-28.9
-0.6
24.3
66.5
5.0
n.a
108.8
n.a

9.6
7.9
30.2
-20.6
0.3
27.4
62.7
5.1
n.a
105.7
n.a

n.a
n.a
18.9
-7.2
n.a
33.7
56.4
5.6
n.a
102.5
n.a

9.1
n.a
21.2
-15.2
-1.0
31.0
58.6
5.6
n.a
101.4
n.a

5.8
27.8
31.1
-32.8
-0.7
24.1
66.3
5.2
n.a
107.6
n.a

6.8
n.a
29.5
-28.4
-0.3
25.2
65.3
5.0
n.a
109.1
n.a

n.a
n.a
27.7
-29.1
n.a
n.a
n.a
n.a
n.a
108.5
n.a

n.a
n.a
n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a
n.a
n.a

n.a
n.a
28.0
-28.7
n.a
n.a
n.a
n.a
n.a
108.9
n.a

Source :
Commission spring 2012 forecast

26

 
 
 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)
Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:
- Final domestic demand
- Change in inventories
- Net exports
Output gap1
Employment (% change)
Unemployment rate (%)
Labour productivity (% change)
HICP inflation (%)
GDP deflator (% change)
Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

2011
COM SP
1.6
1.8
7.7
1.8
3.4

1.6
1.8
7.7
1.7
3.2

2012
COM SP
1.0
2.0
16.2
1.9
4.1

1.1
0.7
6.2
0.1
0.7

2013
COM SP
2.1
1.4
6.6
4.4
5.0

2.1
2.0
3.9
4.2
4.8

2.7
0.3
-1.5
-2.2
2.7
4.8
-1.1
3.7
4.7
2.0
6.8

2.9
0.8
-2.1
-2.0
2.8
4.5
-1.7
2.8
4.7
2.2
n.a.

1.8
0.0
-0.8
-2.4
2.0
5.2
-0.9
3.0
1.4
3.2
n.a.

5.2
-1.2
-3.1
-2.7
2.1
5.0
-0.7
3.3
2.2
3.4
n.a.

1.9
-0.2
0.4
-1.7
1.1
5.9
1.0
2.0
3.0
3.5
n.a.

2.6
n.a.
-0.4
-2.7
1.4
5.4
0.8
2.5
1.5
3.5
n.a.

2014
SP
3.3
2.1
-1.3
6.7
5.8

0.8
n.a.
2.5
-1.3
1.6
5.6
1.8
2.6
2.2
3.1
n.a.

2015
SP
4.1
3.1
1.6
7.4
7.0

2.1
n.a.
2.0
0.6
2.1
5.5
2.2
2.7
2.3
2.7
n.a.

Note:
1In percent of potential GDP, with potential GDP growth according to the programme as recalculated by the Commission.

Source :

Commission’ spring 2012 forecasts (COM); Stability programme (SP).

27

 
 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

2011

2012

2013

2014

2015

Change: 
2011-2015

Revenue
of which:
- Taxes on production and imports
- Current taxes on income, wealth, etc.
- Social contributions
- Other (residual)
Expenditure
of which:
- Primary expenditure

of which:

COM
41.4

COM
41.9

11.9
14.0
11.9
3.7
42.0

12.0
14.1
12.4
3.3
43.6

SP
41.8

12.2
14.1
12.0
3.5
43.3

COM
41.8

12.2
13.8
12.5
3.3
44.0

SP
42.1

12.3
14.3
12.1
3.4
43.3

SP
42.1

12.4
14.3
12.0
3.4
42.9

SP
40.5

11.2
14.3
11.8
3.2
42.3

41.5

43.1

42.8

43.4

42.7

42.3

41.7

SP
-0.9

-0.7
0.3
-0.1
-0.5
0.3

0.2

3

0.6

0.9

0.1

0.5

2.8

0.4

-2.7

-1.4

-1.7

-0.2

-0.2

-0.6

-1.3

-2.1

-2.7

-2.2

-2.4

-1.4
-0.8

-0.6
-1.0

-0.2
-0.6

0.1
-0.1
0.5
0.0
-0.6
0.2
0.1
-1.2
-1.1
-0.1
-1.1

8.3
3.8
20.7
1.7
3.9
5.0
0.6
-2.2
-1.6
0.0
-2.2

8.1
3.7
20.4
1.8
3.9
4.9
0.5
-1.5
-1.0
0.0
-1.5

8.2
3.8
20.4
1.8
3.9
5.0
0.5
-1.8
-1.2
0.0
-1.8

8.2
3.6
20.5
1.8
3.7
4.8
0.6
-1.2
-0.7
0.0
-1.2

7.9
3.6
19.8
1.7
4.0
4.5
0.5
-0.6
-0.1
0.1
-0.7

8.2
3.5
20.5
1.8
3.6
4.7
0.6
-0.9
-0.3
0.0
-0.9

8.0
3.5
20.3
1.7
3.4
4.7
0.6
-1.8
-1.2
0.0
-1.8

Compensation of employees
Intermediate consumption
Social payments
Subsidies
Gross fixed capital formation
Other (residual)
- Interest expenditure
General government balance (GGB)
Primary balance
One-off and other temporary measures
GGB excl. one-offs
Output gap2
Cyclically-adjusted balance2
Structural balance
Change in structural balance
Structural primary balance3
Change in structural primary balance
Expenditure benchmark
Public expenditure growth4 (real)
Reference rate5,6
Lower reference rate5,7
Deviation in % GDP 
   against applicable reference rate
Two-year average deviation in % GDP 
   against applicable reference rate
Notes:
1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services on 
the basis of the information in the programme.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
4M odified expenditure aggregate used for the expenditure benchmark, growth rates net of non-discretionary changes in unemployment benefit 
and of discretionary measures.
5The reference rates applicable to 2014 onwards will be available from mid-2012. For illustrative purposes, the current reference rates have 
also been applied to the years 2014 onwards.
6The (standard) reference rate applies starting in the year following which the country has reached its M TO.
7The lower reference rate applies as long as the country is adjusting towards its M TO, including the year in which it reaches the M TO.

0.63
0.65

0.63
0.81

0.63
0.57

-1.5
-1.8

0.63
1.25

0.63
1.45

0.63
0.76

-0.8
-0.7

-0.2
-0.4

-2.1
-1.8

0.3
-0.6

0.0
-0.9

0.4
-0.4

0.7
0.4

0.1
0.3

1.76

0.61

1.76

0.73

2.63

2.01

2.19

0.91

1.76

5.30

1.76

1.76

2.45

1.76

1.10

4.85

-2.5

-2.4

-2.6

n.a.

n.a.

-
-

-

-

-

Source :
Stability programme (SP); Commission services’ spring 2012 forecasts (COM); Commission services’ calculations.

28

 
 
 
 
 
 
Table IV. Debt dynamics 

Average 
2006-10

12.2
2.6

-1.6
-0.1

0.3
-0.1
-0.3
4.3

2011

18.2
-0.9

0.1
-0.6

0.5
-0.3
-0.8
-0.3

2012

2013

COM

20.3
2.1

1.2
0.1

0.5
-0.2
-0.2
0.8

SP

20.9
2.7

1.0
-0.1

0.5
-0.2
-0.4
1.8

COM

21.6
1.2

1.6
-0.4

0.6
-0.4
-0.6
0.0

SP

23.6
2.7

0.7
-0.2

0.5
-0.4
-0.3
2.2

2014
SP

24.4
0.8

0.3
-0.6

0.6
-0.7
-0.5
1.1

2015
SP

25.9
1.5

1.2
-0.9

0.6
-0.9
-0.5
1.2

2011

2012

2013

COM/S P3

S P4

COM/S P3

S P4

2014
S P

2015
S P

(% of GDP)

Gross debt ratio1
Change in the ratio
Contributions 2 :

1. Primary balance
2. S now-ball effect

Of which:
Interest expenditure
Growth effect
Inflation effect

3. S tock-flow adjustment

Of which:
Cash/accruals diff.
Accum. financial assets

Privatisation

Val. & residual effects

Gap to the debt benchmark5,6

S tructural adjustment7

To be compared to:
Required adjustment8

Notes:
1End of period.
2The snowball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, the accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in SP assuming growth follows the COM  forecasts.

4Assessment of the consolidation path set in the SP assuming growth follows the SP projections.

5Not relevant during EDP that were ongoing in November 2011 and in the three years following the correction of the excessive 
deficit.

6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio does 
not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary 
projections are achieved.

Source :
Stability programme (SP); Commission spring 2012 forecasts (COM); Commission calculations.

29

 
 
 
 
Table V. Sustainability indicators 

LU

No-policy 
change 
scenario 

Stability 
programme 
scenario

No-policy 
change 
scenario 

EU27

SCPs 
scenario

S2
of which:

Initial budgetary position (IBP)
Long-term change in the primary balance (LTC)
 of which:

pensions
health care and long term care
others

S1 (required adjustment)*

9.8

1.2
8.7

6.6
2.2
-0.1
0.3

10.7

2.0
8.7

6.5
2.1
0.0
1.0

2.9

0.7
2.3

1.1
1.5
-0.3
2.2

0.7

-1.6
2.4

1.2
1.5
-0.3
-0.1

Debt,  % of GDP (2011)
Age-related expenditure, % of GDP (2011)
Source : Commission, 2012 stability programme.
Note : the 'no policy change' scenario depicts the sustainability gap under the assumption that the 
budgetary position evolves according to the spring 2012 forecast until 2013. The 'stability programme' 
scenario depicts the sustainability gap under the assumption that the budgetary plans in the programme 
are fully implemented.
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.

18.2
18.0

82.8
25.8

Figure. Medium-term debt projection 

Gross debt as % of GDP - LU - Medium term debt projections

(% of GDP)

35

30

25

20

15

10

5

0

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

COM no-policy change scenario
COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2014)
COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2014)
COM consolidation scenario (0.5% per year on SB) in order to achieve MTO
COM consolidation scenario (1% per year on SB) in order to achieve MTO
SP scenario

30

 
 
 
 
 
 
 
Table VI. Taxation 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)
Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

             - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

2001

39.8

2005

37.6

2007

35.7

2008

35.5

10.6

10.9

5.8

1.7

2.7

0.4

6.2

1.6

2.8

0.3

9.8

5.8

1.4

2.4

0.3

9.9

5.9

1.3

2.3

0.3

2009

37.6

10.4

6.3

1.4

2.3

0.3

2010

37.1

9.9

6.1

1.3

2.2

0.3

14.6

13.8

13.4

13.9

15.1

14.7

1.2

9.5

3.9

2.8

1.3

8.2

3.3

2.9

1.3

7.6

3.6

2.5

1.3

7.7

2.7

2.5

1.4

8.2

2.6

2.5

1.3

8.3

2.7

2.4

74.4

89.4

93.4

96.2

92.9

92.3

Note: 
1 T ax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission (2012), 

T axation trends in the European Union, for a more detailed explanation.

2 T his category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 T he VAT  efficiency is measured via the VAT  revenue ratio. T he VAT  revenue ratio is defined as the ratio between the actual VAT  revenue collected and the revenue 

that would theoretically be raised if VAT  was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due to large 

exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection gap'). See 

European Commission (2011), T ax reforms in EU Member States, European Economy 5/2011, for a more detailed explanation.

Source: Commission

31

 
 
 
 
 
Table VII. Financial market indicators 

Total assets of the banking sector (% of GDP)
Share of assets of the five largest banks (% of total assets)
Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans) 1)
              - capital adequacy ratio (%) 1) 2)
              - return on equity (%) 1), 3)
Bank loans to the private sector (year-on-year % change)
Lending for house purchase (year-on-year % change)
Loan to deposit ratio
CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)4)
Private debt (% of GDP)
Gross external debt (% of GDP) 4)
            - Public
            - Private
Long term interest rates spread versus Bund (basis points)*
Credit default swap spreads for sovereign securities (5-year)*
Notes: 
1) Latest available September 2011. 
2) The capital adequacy ratio is defined as total capital divided by risk weighted assets.   
3) Net income before provisions for income taxes.
4)  Latest data 2011Q3.
* M easured in basis points.
Source :

2007

2008

2009

2010

2011

3118.4
30.6
94.8

3224.9
29.7
95.5

2986.7
29.3
90.6

2617.0
30.9
…

2631.3
…
…

0.4
14.3
20.4
31.0
22.1
56.8
3.1
…
…

0.6
15.4
5.5
10.8
8.6
68.6
4.2
…
377.1

0.7
19.2
11.5
-5.3
7.1
66.1
1.5
…
394.9

0.2
17.4
13.0
1.5
8.8
69.0
0.3
…
386.5

0.4
18.2
10.2
1.5
9.0
65.8
0.8
…
379.5

0.1
2211.0
24.4
…

2.5
2729.0
62.3
…

2.7
2737.0
100.7
…

6.1
2335.8
42.6
…

5.9
2464.3
31.5
…

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

32

 
 
 
 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate 
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women 
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment 
(% of total employment)
Part-time employment of women  
(% of women employment)
Part-time employment of men  
(% of men employment)
Fixed term employment 
(% of employees with a fixed term contract)
Unemployment rate1 (% of labour force)
Long-term unemployment2  (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)

2006

2007

2008

2009

2010

2011

69.1

69.6

68.8

70.4

70.7

70.1

0.9

3.9

-0.2

7.3

1.7

1.8

59.4

61.0

60.1

61.5

62.0

61.9

78.9

78.3

77.2

79.0

79.2

78.1

33.2

32.0

34.1

38.2

39.6

39.3

17.1

17.8

18.0

18.4

18.0

18.5

36.2

37.1

38.3

35.2

36.1

36.2

2.6

6.1

4.6

1.4

2.6

6.8

4.2

1.2

2.7

6.2

4.9

1.6

5.7

7.2

5.1

1.2

4.1

7.1

4.6

1.3

4.9

7.1

4.8

1.4

15.5

15.6

17.3

16.5

15.8

15.6

Youth NEET3 rate (% of population aged 15-24)

6.7

5.7

6.2

5.8

Early leavers from education and training (% of 
pop. 18-24 with at most lower sec. educ. and not in 
further education or training)
Tertiary educational attainment (% of population 
30-34 having successfully completed tertiary 
education)
Labour productivity per person employed (annual 
% change )
Hours worked per person employed  (annual % 
change)
Labour productivity per hour worked (annual % 
change; constant prices)
Compensation per employee (annual % change; 
constant prices)
Nominal unit labour cost growth (annual % 
change)

5.1

7.1

0.8

0.3

0.6

-2.2

1.7

:

:

:

-1.2

0.2

-1.4

0.5

3.2

14.0

12.5

13.4

7.7

33.5

35.7

38.7

44.5

44.2

1.4

-0.1

1.4

-3.9

1.2

2.1

0.5

1.6

0.1

1.6

-3.8

0.0

-3.8

-2.1

6.2

1.7

-6.2

-4.2

-2.1

1.7

8.6

8.4

Real unit labour cost growth (annual % change)

-5.1

-2.0

Notes:

-3.0

-1.4

1 According to ILO definition, age group 15-74)
2 Share of persons in the labour force who have been unemployed for at least 12 months.
3 NEET are persons that are neither in employment nor in any education or training.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

33

 
 
 
 
 
Table VIII. Labour market and social indicators (continued) 

Expenditure on social protection 
benefits (% of GDP)
Sickness/Health care
Invalidity
Old age and survivors
Family/Children
Unemployment
Housing and Social exclusion n.e.c.
Total
of which:  Means tested benefits
Social inclusion indicators
Risk-of-poverty or exclusion1 (% of total 
population)
Risk-of-poverty or exclusion of children (% of 
people aged 0-17)
Risk-of-poverty or exclusion of elderly (% of 
people aged 65+)
At-risk-of-poverty rate2 (% of total population)
Value of relative poverty threshold (single 
household per year) - in PPS
Severe material deprivation3  (% of total 
population)

Share of people living in low work intensity 
households4 (% of people aged 0-59 not student)

In-work at-risk-of poverty rate (% of persons 
employed)

Notes:

2005

2006

2007

2008

2009

5.46
2.78
5.60
3.59
1.07
0.15
21.7
0.60

5.07
2.64
5.35
3.39
0.98
0.17
20.4
0.60

4.94
2.34
5.19
3.15
0.93
0.15
19.3
0.57

5.00
2.29
5.33
3.94
0.91
0.18
20.2
0.59

5.77
2.58
6.19
4.04
1.27
0.33
23.1
0.83

2006

2007

2008

2009

2010

16.5

15.9

15.5

17.8

17.1

20.4

21.2

20.9

23.7

22.3

8.3

14.1

7.2

13.5

5.4

13.4

6.2

14.9

6.1

14.5

15851

16108

16166

16221

16048

1.1

0.8

0.7

1.1

0.5

5.2

5.0

4.7

6.3

5.5

10.3

9.3

9.4

10.0

10.6

1 People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or 
suffering from severe material deprivation (SMD) and/or living in households with zero or very low work intensity 
(LWI).

2 At-risk-of poverty rate: share of people with an equivalised disposable income below 60% of the national equivalised 
median income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility 
bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent 
every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households where the 
adults work less than 20% of their total work-time potential during the previous 12 months.

Sources: 
For expenditure on social protection benefits ESSPROS; for social inclusion EU-SILC.

34

 
 
 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, water 
(annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Patent intensity in manufacturing2 (patents of the 
EPO divided by gross value added of the sector)

2002-
2006

1.3

3.0

2007

2008

2009

2010

2011

1.3

3.0

-0.5

-2.5

-2.4

-8.0

2.4

9.9

1.4

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

-0.2

-2.0

-1.3

-1.6

1.1

n.a.

3.2

2.9

2.5

n.a.

n.a.

n.a.

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2002-
2006

n.a.

n.a.
1.8

2007

2008

2009

2010

2011

535

20
1.8

542

17
1.9

548

15
2.0

549

15
2.0

26.5

30.0

31.1

32.3

33.6

556

14
n.a.

n.a.

5.1

5.0

5.1

n.a.

n.a.

n.a.

2005

2006

2008

2009

2010

2011

n.a.

n.a.

n.a.

n.a.

2

4

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

3

3

3*

n.a.

n.a.

n.a.

Notes:
1Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Patent data refer to applications to the European Patent Office (EPO). They are counted according to the year in which 
they were filed at the EPO. They are broken down according to the inventor's place of residence, using fractional counting if 
multiple inventors or IPC classes are provided to avoid double counting. 
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 
4 The methodologies for the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.

5 Aggregate ET CR.

*figure for 2007.

Source :

Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

35

 
 
 
 
 
Table X. Indicators on green growth 

Luxembourg

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users 
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS
Transport energy intensity
Transport carbon intensity
Change in the ratio of passenger transport and GDP

Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share of renewable energy in energy mix

2001-
2005

0.18
0.49
0.44
n.a.
-3.1%
11
1.3
18.6%
7.5%

0.28
6.8
0.07
n.a.
n.a.
57.3%
n.a.
1.03
2.51
-1.2%

98.3%
n.a.
0.47
1.1%

2006

2007

2008

2009

2010

0.17
0.47
0.44
0.35
-4.1%
12
8.7
17.8%
7.3%

0.27
5.8
0.08
0.00%
0.01%
81.1%
20.8%
1.00
2.46
-2.8%

98.7%
0.00
0.47
1.6%

0.16
0.42
0.40
0.33
-3.7%
11
-0.8
17.1%
7.1%

0.22
6.8
0.10
0.00%
0.01%
82.0%
20.7%
0.92
2.23
-3.1%

97.2%
0.00
0.46
2.4%

0.16
0.41
0.35
0.32
-4.6%
12
11.7
16.3%
7.0%

0.23
5.9
0.09
0.01%
0.02%
82.4%
17.1%
0.88
2.15
3.3%

97.9%
0.00
0.46
2.6%

0.15
0.42
0.34
n.a.
-2.5%
11
-11.9
14.9%
6.6%

0.23
4.9
0.11
0.01%
0.02%
82.8%
18.7%
0.83
2.03
n.a.

97.6%
0.00
0.46
2.8%

0.16
n.a.
n.a.
n.a.
-3.5%
11
3.5
n.a.
n.a.

n.a.

n.a.
0.10
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €
%

%
HHI
HHI
%

Country-specific notes: 
The year 2011 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN explanations given below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic Material Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by Member States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport (in kgoe) divided by gross value added of industry (in EUR) 
Transport carbon intensity:  greenhouse gas emissions in transport divided by gross value added of the transport sector
Passenger transport growth : measured in %-change in passenger kilometres
Energy import dependency: net energy imports divided by gross inland energy consumption incl. of international bunkers
Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share of renewable energy in energy mix: percentage-share in  gross inland energy consumption, expressed in tonne oil equivalents

36