Recommendation for a COUNCIL RECOMMENDATION on Luxembourg’s 2012 national reform programme and delivering a Council opinion on Luxembourg’s 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  
COM(2012) 315 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Luxembourg’s 2012 national reform programme  

and delivering a Council opinion on Luxembourg’s stability programme for 2012-2015

{SWD(2012) 315 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Luxembourg’s 2012 national reform programme  

and delivering a Council opinion on Luxembourg’s stability programme for 2012-2015 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having regard to the recommendation of the European Commission2, 

Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission’s 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and, on 21 
October  2010,  adopted  a  decision  on  guidelines  for  the  employment  policies  of  the 
Member States4, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

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2 
3  
4 

OJ L 209, 02.08.1997, p. 1 
COM(2012)315 final 
P7_TA(2012)0048 and P7_TA(2012)0047 
Council Decision 2012/238/EU of 26 April 2012 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On  12  July  2011,  the  Council  adopted  a recommendation  on  Luxembourg’s  national 
reform  programme  for  2011  and  delivered  its  opinion  on  Luxembourg’s  updated 
stability programme for 2011-2014. 

On 23 November 2011, the Commission adopted the second Annual Growth Survey, 
marking  the  start  of  the  second  European  Semester  of  ex-ante  and  integrated  policy 
coordination,  which  is  anchored  in  the  Europe  2020  strategy.  On  14  February  2012, 
the  Commission,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  adopted  the  Alert 
Mechanism  Report5,  in  which it  did not identify Luxembourg  as one  of  the  Member 
States for which an in-depth review would be carried out. 

On 2 March 2012, the European Council endorsed the priorities for ensuring financial 
stability,  fiscal  consolidation  and  action  to  foster  growth.  It  underscored  the  need  to 
pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal  lending 
conditions  to  the  economy,  to  promote  growth  and  competitiveness,  to  tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 

On 2 March 2012, the European Council also invited the Member States participating 
in  the  Euro  Plus  Pact  to  present  their  commitments  in  time  for  inclusion  in  their 
stability or convergence programmes and their national reform programmes. 

On 27 April 2012, Luxembourg submitted its 2012 stability programme covering the 
period 2012-2015 and its 2012 national reform programme. In order to take account of 
their interlinkages, the two programmes have been assessed at the same time. 

Based  on  the  assessment  of  the  2012  Stability  Programme  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario  underpinning  the  budgetary  projections  in  the  programme  is  plausible.  In 
particular,  the  programme  scenario  for  2012  and  2013  is  very  close  to  the 
Commission's 2012 spring forecast. Medium-term deficit projections are made under a 
slightly  optimistic  growth  scenario,  above  potential  growth  although  still  well  below 
average  historic  rates.  The  objective  of  the  budgetary  strategy  outlined  in  the 
programme is to bring the deficit from 1.5% in 2012 to 0.9% in 2014 with a package 
of  consolidation  measures  of  around  1.2%  of  GDP  and  provide  a  wider  room  for 
manoeuvre in case of negative shocks. The programme confirms the previous medium 
term objective (MTO) of a structural surplus of 0.5%. However, 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.  Moreover,  based  on  both  the  Commission's  2012 
spring  forecast  as  well  as  on  the  (recalculated)  structural  budget  balance  in  the 
programme, Luxembourg would significantly depart from its own MTO starting from 
2012.  The  growth  rate  of  government  expenditure,  net  of  discretionary  revenue 
measures, is expected to significantly exceed the expenditure benchmark as defined in 
the Stability and Growth Pact. At 20 % of GDP, gross government debt is below the 
reference value of the Treaty. 

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COM(2012) 68 final 

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(9) 

(10) 

On 20 January 2012, the Luxembourg government adopted a draft law to reform the 
pension system for both the private and the public sector. The reform would build in 
some corrective mechanisms in case of an adverse evolution of the financial situation 
of  the  scheme  and  contains  adaptations  to  the  very  generous  calculations  method  of 
benefits. However, the new calculation method will be phased in over a very long time 
horizon  of  40  years.  Moreover  the  possibilities  for  early  retirement  remain  broadly 
unchanged and no measures have been proposed to link the statutory retirement age to 
life expectancy. Overall, Luxembourg is taking steps into the right direction, but  the 
proposed  reform  does  not  seem  to  constitute  a  sufficient  guarantee  of  long-term 
sustainability of public finances. 

In January 2012, the national Parliament adopted a law to limit the application of the 
automatic  indexation  of  wages  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  further 
plans  for  a  permanent  revision  of  the  wage-setting  system.  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  partners  and  in  accordance  with  national  practices,  is 
necessary to preserve the competitiveness of the Luxembourg economy in the longer 
term. 

(11) 

 Luxembourg  has  taken  some  relevant  and  credible  steps  to  tackle  its  relatively  high 
youth  unemployment.  However,  in  order  to  ease  young  people’s  integration  into  the 
labour  market,  a  coherent  strategy  is  needed  to,  inter  alia,  strengthen  collaboration 
between municipalities and improve the effectiveness of employment services. Young 
jobseekers, and particularly those with lower education level, would also benefit from 
more investment in training and education.  

(12)  Luxembourg is expected to face difficulties in reaching its 2020 target for greenhouse 
gas  (GHG)  emission  reduction.  According  to  the  latest  2020-projections  based  on 
existing  measures,  Luxembourg  is  expected  to  increase  its  emissions  in  non-ETS 
sectors  by  9%  between  2005  and  2020,  compared  to  a  reduction  target  of  20%.  The 
road sector represents the most significant source of emissions and possesses a large 
emission reduction potential. The price of transport fuels remains one of the lowest in 
the  EU,  encouraging  ‘fuel  tourism’  and  inducing  negative  externalities  in  terms  of 
pollution and congestion. Additional policies are necessary to reduce GHG emissions, 
or costly flexibility mechanisms will have to be used.  

(13)  Luxembourg  has  made  a  number  of  commitments  under  the  Euro  Plus  Pact.  The 
commitments, and the implementation of the commitments presented in 2011, relate to 
improving  competitiveness,  enhancing  employment  and  strengthening  financial 
stability.  The  Commission  has  assessed  the  implementation  of  the  Euro  Plus  Pact 
commitments.  The  results  of  this  assessment  have  been  taken  into  account  in  the 
recommendations. 

(14) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Luxembourg’s  economic  policy.  It  has  assessed  the 
stability  programme  and  national  reform  programme.  It  has  taken  into  account  not 
only their relevance for sustainable fiscal and socio-economic policy in Luxembourg 
but also their compliance with EU rules and guidance, given the need to reinforce the 

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overall economic governance of the European Union by providing EU-level input into 
future  national  decisions.  Its  recommendations  under  the  European  Semester  are 
reflected in recommendations (1) to (5) below.  

(15) 

In  the  light  of  this  assessment,  the  Council  has  examined  Luxembourg’s  stability 
programme, and its opinion6 is reflected in particular in recommendation (1) below, 

HEREBY RECOMMENDS that Luxembourg should take action within the period 2012-2013 
to: 

1. 

2. 

3. 

4. 

5. 

Preserve  a  sound  fiscal  position  correcting  any  departure  from  a  medium-term 
budgetary  objective  (MTO)  that  ensures  the  long-term  sustainability  of  public 
finances, in particular taking into account implicit liabilities related to ageing. To this 
end,  reinforce  and  rigorously  implement  the  budgetary  strategy,  supported  by 
sufficiently specified measures, for the year 2013 and beyond, including meeting the 
expenditure benchmark.  

the 

impact  of 

the  proposed  pension  reform  by  accelerating 

 Increase 
the 
implementation  of  measures  that  curb  age-related  expenditure,  take  additional 
measures to increase the participation rate of older workers, in particular by reducing 
early retirement, and take steps to link the statutory retirement age to life expectancy, 
in order to ensure the long-term sustainability of the pension system 

Take  further  steps  to  reform,  in  consultation  with  the  social  partners  and  in 
accordance with national practice, the wage bargaining and wage indexation system, 
with  a  view  to  preserve  the  competitiveness  of  the  Luxembourg  economy  in  the 
longer  term,  as  a  first  step  by  maintaining  the  current  one-year  indexation  interval 
beyond  2014  and  by  reducing  the  impact  of  energy  and  other  volatile  items  on  the 
reference index. 

Continue  efforts  to  reduce  youth  unemployment  by  reinforcing  stakeholders’ 
involvement, and by strengthening training and education measures, in particular for 
those  with  low  education  levels,  with  the  aim  of  better  matching  young  people's 
skills and qualifications to labour demand 

Ensure  that  the  targets  for  reducing  greenhouse  gas  emissions  from  non-ETS 
(Emissions  Trading  System)  activities  will  be  met,  in  particular  by  greening  the 
taxation system. 

Done at Brussels, 

For the Council 
The President 

6 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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