Recommendation for a COUNCIL RECOMMENDATION on the 2020 National Reform Programme of Luxembourg and delivering a Council opinion on the 2020 Stability Programme of Luxembourg
Date: 2020-05-20
Institutions: European Commission, Secretariat-General
Subjects: Luxembourg, economic policy, economic recovery, economic reform, employment policy, epidemic, infectious disease, investment, money laundering, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 516 final  Recommendation for a COUNCIL RECOMMENDATION on the 2020 National Reform Programme of Luxembourg and delivering a Council opinion on the 2020 Stability Programme of Luxembourg  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2020 National Reform Programme of Luxembourg and delivering a Council 
opinion on the 2020 Stability Programme of Luxembourg 

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 Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

On  17  December  2019,  the  Commission  adopted  the  Annual  Sustainable  Growth 
Strategy,  marking  the  start  of  the  2020  European  Semester  for  economic  policy 
coordination. It took due account of the European Pillar of Social Rights, proclaimed 
by the European Parliament, the Council and the Commission on 17 November 2017. 
On  17  December  2019,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  in  which  it  did  not  identify 
Luxembourg  as  one  of  the  Member  States  for  which  an  in-depth  review  would  be 
carried out. On the same date, the Commission also adopted a recommendation for a 
Council recommendation on the economic policy of the euro area. 
The  2020  country  report  for  Luxembourg2  was  published  on  26  February  2020.  It 
assessed Luxembourg’s progress in addressing the country-specific recommendations 
adopted by the Council on 9 July 20193, the follow-up given to the recommendations 
adopted  in  previous  years  and  Luxembourg’s  progress  towards  its  national  Europe 
2020 targets. 

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OJ L 209, 2.8.1997, p. 1. 
SWD(2020) 515 final. 
OJ C 301, 5.9.2019, p. 117. 

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(3) 

(4) 

(5) 

(6) 

(7) 

On 11 March 2020, the World Health Organization officially declared the COVID-19 
outbreak  a  global  pandemic.  It  is  a  severe  public  health  emergency  for  citizens, 
societies  and  economies.  It  is  putting  national  health  systems  under  severe  strain, 
disrupting  global  supply  chains,  causing  volatility  in  financial  markets,  triggering 
consumer  demand  shocks  and  having  negative  effects  across  various  sectors.  It  is 
threatening  people’s  jobs,  their  incomes  and  companies’  business.  It  has  delivered  a 
major  economic  shock  that  is  already  having  serious  repercussions  in  the  European 
Union. On 13 March 2020, the Commission adopted a Communication4 calling for a 
coordinated economic response to the crisis, involving all actors at national and Union 
level. 

Several  Member States have declared a state of  emergency or introduced emergency 
measures.  Any  emergency  measures  should  be  strictly  proportionate,  necessary, 
limited in time, and in line with European and international standards. They should be 
subject to democratic oversight and independent judicial review. 

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of 
the general escape clause of the Stability and Growth Pact5. The clause, as set out in 
Articles 5(1), 6(3), 9(1) and 10(3) of Regulation  (EC) 1466/97 and Articles 3(5) and 
5(2) of Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in 
times  of  severe  economic  downturn.  In  its  Communication,  the  Commission  shared 
with the Council its view that, given the expected severe economic downturn resulting 
from  the COVID-19 outbreak, the  current  conditions  permit  activation of the clause. 
On  23  March  2020,  the  Ministers  of  Finance  of  the  Member  States  agreed  with  the 
assessment of the Commission. The activation of the general escape clause allows for 
a temporary departure from the adjustment path  towards the medium-term budgetary 
objective,  provided  that  this  does  not  endanger  fiscal  sustainability  in  the  medium 
term. For the corrective arm, the Council may also decide, on a recommendation from 
the Commission,  to  adopt  a revised  fiscal  trajectory. The  general  escape  clause does 
not suspend the procedures of the Stability and Growth Pact. It allows Member States 
to depart from the budgetary requirements that would normally apply while enabling 
the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Continued  action  is  required  to  limit  and  control  the  spread  of  the  pandemic, 
strengthen  the  resilience  of  the  national  health  systems,  mitigate  the  socio-economic 
consequences through supportive measures for business and households and to ensure 
adequate  health  and  safety  conditions  at  the  workplace  with  a  view  to  resuming 
economic  activity.  The  Union  should  fully  use  the  various  tools  at  its  disposal  to 
support  Member  States’  efforts  in  those  areas.  In  parallel,  Member  States  and  the 
Union should work together to prepare the measures necessary to get back to a normal 
functioning of our societies and economies and to sustainable growth, integrating inter 
alia the green and digital transformation, and drawing all lessons from the crisis. 

The  COVID-19  crisis  has  highlighted  the  flexibility  that  the  single  market  offers  to 
adapt  to  extraordinary  situations.  However,  in  order  to  ensure  a  swift  and  smooth 
transition to the recovery phase and the free movement of goods, services and workers, 
exceptional  measures that prevent  the single market  from  functioning  normally must 
be removed as soon as they are no longer indispensable. The current crisis has shown 
the need for crisis preparedness plans in the health sector, which include in particular 

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COM(2020) 112 final. 
COM(2020) 123 final. 

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(8) 

improved  purchasing  strategies,  diversified  supply  chains  and  strategic  reserves  of 
essential supplies.. They are key elements for developing broader crisis preparedness 
plans.  
The  Union  legislator  has  already  amended  the  relevant  legislative  frameworks6  to 
allow  Member  States  to  mobilise  all  unused  resources  from  the  European  Structural 
and  Investment  Funds  so  they  can  address  the  exceptional  effects  of  the  COVID-19 
pandemic. Those amendments will provide additional flexibility, as well as simplified 
and streamlined procedures. To alleviate cash flow pressures, Member States can also 
benefit  from  a  100%  co-financing  rate  from  the  Union  budget  in  the  2020-2021 
accounting year. Luxembourg is encouraged to make full use of those possibilities to 
help the individuals and sectors most affected by the challenges. 

(9) 

On 30 April 2020, Luxembourg submitted its 2020 National Reform Programme and, 
on  29  April  2020,  its  2020  Stability  Programme.  In  order  to  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

(10)  Luxembourg is currently in the preventive arm of the Stability and Growth Pact.  

(11) 

(12) 

In  its  2020  Stability  Programme,  the  government  plans  the  headline  balance  to 
deteriorate  from  a  surplus  of  2,2%  of  GDP  in  2019  to  a  deficit  of  8,5  %  of  GDP  in 
2020.  The  deficit  is  projected  to  decline  to  3,0%  of  GDP  in  2021.  After  having 
increased  to  22,1%  of  GDP  in  2019,  the  general  government  debt-to-GDP  ratio  is 
expected to increase to 28,7% in 2020 according to the 2020 Stability Programme. The 
macroeconomic  and  fiscal  outlook  are  affected  by  high  uncertainty  related  to  the 
COVID-19 pandemic. 

In response to the COVID-19 pandemic, and as part of a coordinated Union approach, 
Luxembourg  has  adopted  budgetary  measures  to  increase  the  capacity  of  its  health 
system, contain the pandemic, and provide relief to those individuals and sectors that 
have  been  particularly  affected.  According  to  the  2020  Stability  Programme,  those 
budgetary measures amounted to 5,5% of GDP. The measures include: strengthening 
health care services, support for distressed firms, refundable loans and short-time work 
arrangements,  including  for  self-employed  and  cross-border  workers.  In  addition, 
Luxembourg  has  announced  measures  that,  while  not  having  a  direct  budgetary 
impact, will contribute to support the liquidity of businesses. Those measures include 
tax  deferrals,  loans  to  small  and  medium-sized  enterprises  in  temporary  financial 
difficulties  and  guarantees.  In  contrast  with  the  2020  Stability  Programme,  the 
Commission  estimates  a  smaller  impact  of  the  package  as  it  does  not  consider  tax 
deferrals  and  the  granting  of  refundable  loans  as  discretionary  measures  with  a 
budgetary impact. The authorities consider nevertheless that a part of the tax deferrals 
on direct taxes would finally have a budgetary impact, which is included in the above-
mentioned amount of 5.5% of GDP. Moreover, a share of the cost related to the short-
time working schemes has been considered as part of the functioning of the automatic 
stabilisers. Overall, the measures taken by Luxembourg are in line with the guidelines 

6 
Regulation (EU) 2020/460 of the European Parliament and of the Council of 30 March 2020 amending 
Regulations  (EU)  No  1301/2013,  (EU)  No  1303/2013  and  (EU)  No  508/2014  as  regards  specific  measures  to 
mobilise  investments  in  the  healthcare  systems  of  Member  States  and  in  other  sectors  of  their  economies  in 
response to the COVID-19 outbreak (Coronavirus Response Investment Initiative) (OJ L 99, 31.3.2020, p. 5) and 
Regulation  (EU)  2020/558  of  the  European  Parliament  and  of  the  Council  of  23  April  2020  amending 
Regulations  (EU)  No  1301/2013  and  (EU)  No  1303/2013 as  regards  specific  measures  to  provide  exceptional 
flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak 
(OJ L 130, 24.4.2020, p. 1). 

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set out in the Commission Communication on a coordinated economic response to the 
COVID-19  outbreak.  The  full  implementation  of  those  measures,  followed  by  a 
refocusing of  fiscal  policies towards achieving prudent  medium-term fiscal  positions 
when economic conditions allow, will contribute to preserving fiscal sustainability in 
the medium term.  

(13)  Based  on 

the  Commission  2020  spring  forecast  under  unchanged  policies, 
Luxembourg’s general government balance is forecast at a deficit of 4,8% of GDP in 
2020 and at a surplus of 0,1% in 2021. The general government debt ratio is projected 
to  remain  below  60%  of  GDP  in  2020  and  2021.  Compared  to  the  Commission 
forecasts,  the  Stability  programme  is  based  on  more  prudent  assumptions  for  both 
revenues and expenditures. 

(14)  On 20 May 2020, the Commission issued a report prepared in accordance with Article 
126(3) of the Treaty due to Luxembourg’s projected breach of the 3% of GDP deficit 
threshold in 2020. Overall, the analysis suggests that the deficit criterion as defined in 
the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.    

(15)  Luxembourg has one of the best performing health systems in the EU. However, with 
49%  of  doctors  and  62%  of  health  workforce  being  non-national  professionals,  the 
system  is  well  above  the  critical  vulnerability  threshold  (as  from  the  World  Health 
Organisation  indicator).  In  this  context,  Luxembourg’s  health  system  could  be 
impacted by potential unilateral decisions by neighbouring countries at times of crisis. 
Luxembourg had to adopt short-time measures in record time to improve the resilience 
of its healthcare system in the wake of the COVID-19 crisis – for instance mobilising 
medical  infrastructure  and  setting  up  a  temporary  extension  of  a  hospital,  as  well  as 
providing  accommodation  in  Luxembourg  for  cross-border  health  workers  and  their 
families.  

(16)  The health system is expected to face rising challenges in the future, in addition to the 
growing  number  of  vacancies  of  health  workers  in  recent  years.  Specifically,  an 
increasing  demand  for  healthcare  is  expected  from  an  ageing  population,  and 
retirements of between 59% and 69% of the medical staff are projected in the coming 
15 years. Skill mix innovations and the development of professional roles, task sharing 
and substitution will play an important role in keeping the health sector an attractive 
place to work. More generally, there is room to improve the governance of the health 
system,  including  cooperation  with  neighbouring  countries,  and  the  government  has 
just  engaged  in  a  significant  reform.  Although  digital  infrastructure  is  already 
advanced  in  Luxembourg,  efforts  are  still  ongoing  to  implement  e-health  solutions, 
such as digital solutions for reimbursing providers. Luxembourg has focused strongly 
on digital technologies, such as supercomputing, artificial intelligence, blockchain and 
big data, and has the potential to leverage on these capabilities and cooperate at Union 
level  to  make  a  major  contribution  to  the  research  to  neutralise  the  virus  and  reduce 
infections.  Luxembourg  has  also  set  up  a  new  support  scheme  for  research  and 
development  investment  projects  on  products  fighting  COVID-19,  which  are  needed 
to  efficiently  address  the  current  outbreak  by  developing  effective  treatment  and 
vaccines.  

(17)  According to the Commission’s forecast, unemployment is expected to rise to 6,4% in 
2020  and  recover  to  6,1%  in  2021.  Luxembourg  has  taken  a  number  of  measures  to 
maintain employment,  notably on ‘chômage partiel’. However, special consideration 
should be given to more vulnerable groups, such as older and low-skilled workers, in a 
context  where  the  new  minimum  income  scheme  (REVIS,  ‘revenu  d'inclusion 

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sociale’)  has  already  led  to  an  increase  of  registered  unemployed  people  with  the 
public  employment  service,  due  to  compulsory  registration  of  its  beneficiaries  since 
January  2019.  Those  more  vulnerable  people  would  suffer  most  from  an  increased 
competition on the labour market as a result of the COVID-19 crisis. Other vulnerable 
people  suffering  from  the  crisis  might  be  temporary  workers,  as  well  as  low-skilled 
workers  in  general.  Concerning  older  workers,  their  low  employment  rate  remains  a 
structural  issue  in  Luxembourg,  which  also  has  an  impact  on  the  long-term 
sustainability  of  the  pension  system,  as  developed  in  recommendations  addressed  to 
Luxembourg  in  previous  years.  In  the  current  context,  older  workers  face  additional 
risks of being dismissed due to  the  crisis; increasing their  adaptability for other jobs 
and sectors, including through upskilling and reskilling, is necessary more than ever. 
Luxembourg performs close to the EU average on social inclusion, but indicators on 
inequality and in-work poverty have been weakening in recent years, and opportunities 
for  students  remain  strongly  influenced  by  their  socio-economic  background.  In  this 
context,  more  vulnerable  groups  in  particular  should  be  supported  to  face  the  social 
impacts of the crisis.  

(18)  To support businesses through the COVID-19 crisis, in particular small and medium-
sized enterprises, including the self-employed and micro-enterprises, Luxembourg has 
included  a  number  of  measures  in  its  ‘Stabilisation  Plan’.  Retail  is  one  of  the  most 
affected  sectors,  due  to  the  collapse  in  demand  and  to  the  current  measures  that 
prevented  many  businesses  from  functioning  altogether,  or  limited  their  operations. 
Regulatory flexibility would boost a rebound of retail in the aftermath of the crisis. In 
addition,  it  would  be  beneficial  to  support  small  and  medium-sized  enterprises  in 
adopting  digital  technologies  that  ensure  business  continuity,  such  as  e-commerce. 
Appropriate  measures  should  be  maintained  throughout  the  recovery  period,  while 
applying a gradual and flexible phasing out, and identifying the most affected sectors, 
in  order to  develop specific support plans that  would  enable them  to  catch up in  the 
recovery phase.  In the process  of implementing these measures, the  resilience of the 
banking sector needs to be taken into account. Following the most acute phase of the 
crisis,  to  support  the  transition  and  creation  of  new  small  and  medium-sized 
enterprises  in  growth-enhancing  sectors,  a  reform  of  Luxembourg’s  insolvency 
framework may help businesses get a second chance, if they face bankruptcy through 
no fault of their own.  

(19)  To  foster  the  economic  recovery,  it  will  be  important  to  front-load  mature  public 
investment  projects  and  promote  private  investment,  including  through  relevant 
reforms,  notably  in  digital  and  green  sectors.  Luxembourg  has  already  launched 
initiatives  to  boost  digitalisation  and  innovation,  but  technological  integration  in  the 
business sector and private investment, as well as the digitalisation of public services, 
remain low, compared with the high-potential environment and the country’s ambition 
to transition to a data-driven economy. Investments in digitalisation, advanced digital 
skills,  and  innovation  –  including  developing  an  integrated  research  and  innovation 
strategy  –  will  be  essential  to  support  small  and  medium-sized  enterprises,  boost 
productivity  and  competitiveness.  The  recovery  should  also  be  further  supported  by 
advancing  ambitious  green  investments  in  the  short  term.  Key  sectors  can  be,  in 
including  rail,  sustainable 
particular,  further  action  on  sustainable 
construction,  in  particular  in  relation  to  the  energy  efficiency  of  buildings,  both 
existing and new, and renewable energy. These would help to provide a robust green 
stimulus,  and  support  Luxembourg  in  bridging  the  gap  to  its  2030  targets  on 
greenhouse  gas  emissions  reduction,  energy  efficiency  and  renewable  energy,  also 
preparing  the  ground  towards  climate  neutrality.  Further  identification  of  investment 

transport, 

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needs  and  financial  sources  for  investments  remains  necessary,  also  in  light  of  the 
impact  of  the  COVID-19  outbreak  on  the  economy  and  public  finances.  The 
programming  of  the  Just  Transition  Fund  for  the  period  2021-2027  could  help 
Luxembourg  to  address  some  of  the  challenges  posed  by  the  transition  to  a  climate-
neutral  economy,  in  particular  in  the  territories  covered  by  Annex  D  to  the  country 
report. This would allow Luxembourg to make the best use of that fund. 

(20)  Luxembourg faces significant money laundering risks in view of the high inflows of 
foreign  direct  investments  and  the  presence  of  complex  legal  structures  with  foreign 
sponsors.  These  risks  are  reflected  in  the  national  risk  assessment,  particularly  in 
relation to professionals engaged in the provision of services to companies and trusts 
or  investment  services.  Weaknesses  in  the  application  of  the  anti-money  laundering 
framework by these professionals result in inadequate risk analyses and a low level of 
reporting of suspicious activities. The intensity of supervision of these professionals is 
inadequate to remedy these shortcomings. A national register of beneficial owners has 
been set up for companies to limit secrecy and identify beneficial owners. The quality 
of the information provided and the effectiveness of the register needs to be monitored 
over time. 

to  complement  Union 

(21)  Tackling aggressive tax planning remains key to improving the efficiency and fairness 
of  tax  systems,  as  acknowledged  in  the  2020  euro  area  recommendation.  Spillover 
effects of taxpayers’ aggressive tax planning strategies between Member States call for 
a  coordinated  action  of  national  policies 
legislation. 
Luxembourg  has  taken  steps  to  address  aggressive  tax  planning  practices  by 
implementing  previously  agreed  international  and  European  initiatives,  but  the  high 
level of dividend, interest and royalty payments as a percentage of GDP suggests that 
the country’s tax rules are used by companies that engage in aggressive tax planning. 
The  majority  of  foreign  direct  investment  is  held  by  ‘special  purpose  entities’.  The 
absence  of  withholding  taxes  on  outbound  (i.e.  from  EU  residents  to  third  country 
residents) interest and royalty payments, and the exemption from withholding taxes on 
dividend payments under certain circumstances, may lead to those payments escaping 
tax  altogether,  if  they  are  also  not  subject  to  tax  in  the  recipient  jurisdiction. 
Luxembourg  has  tabled  a  draft  law  introducing  the  non-deductibility  of  interest  and 
royalty  payments  to  jurisdictions  included  in  the  EU  list  of  non-cooperative 
jurisdictions  for  tax  purposes,  in  line  with  its  commitment  to  introduce  defensive 
measures vis-à-vis those jurisdictions. 

to  address  medium- 

(22)  While the present recommendations focus on tackling the socio-economic impacts of 
the  pandemic  and  facilitating  the  economic  recovery,  the  2019  country-specific 
recommendations adopted by the Council on 9 July 2019 also covered reforms that are 
essential 
structural  challenges.  Those 
recommendations remain pertinent and will continue to be monitored throughout next 
year’s  European  Semester  annual  cycle.  That  also  applies  to  recommendations 
regarding investment-related economic policies. The latter recommendations should be 
taken  into  account  for  the  strategic  programming  of  cohesion  policy  funding  post-
2020, including for mitigating measures and exit strategies with regard to the current 
crisis. 

long-term 

to 

(23)  The  European  Semester  provides  the  framework  for  continuous  economic  and 
employment  policy  coordination  in  the  Union,  which  can  contribute  to  a  sustainable 
economy.  Member  States  have  taken  stock  of  progress  regarding United  Nations’ 
Sustainable  Development  Goals  (SDGs)  implementation  in  their  2020  National 
Reform  Programmes.  By  ensuring  the  full  implementation  of  the  recommendations 

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below,  Luxembourg  will  contribute  to  the  progress  towards  the SDGs and  to  the 
common effort of ensuring competitive sustainability in the Union.  

(24)  Close coordination between economies in the economic and monetary union is key to 
achieve  a  swift  recovery  from  the  economic  impact  of  the  COVID-19.  Luxembourg 
should,  as  a  Member  State  whose  currency  is  the  euro  –  and  taking  into  account 
political  guidance  by  the  Eurogroup  –  ensure  its  policies  remain  consistent  with  the 
euro area recommendations and coordinated with those of the other euro area Member 
States. 

(25) 

In  the  context  of  the  2020  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Luxembourg’s  economic  policy  and  published  it  in  the 
2020 country report. It has also assessed the 2020 Stability Programme and the 2020 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  Luxembourg  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Luxembourg,  but  also 
their  compliance  with  Union  rules  and  guidance,  given  the  need  to  strengthen  the 
Union’s  overall  economic  governance  by  providing  Union-level  input  into  future 
national decisions.  

(26) 

In  the  light  of  that  assessment,  the  Council  has  examined  the  2020  Stability 
Programme and its opinion7 is reflected in particular in recommendation (1) below,  

HEREBY RECOMMENDS that Luxembourg take action in 2020 and 2021 to: 

1. 

2. 

3. 

In  line  with  the  general  escape  clause,  take  all  necessary  measures  to  effectively 
address the pandemic, sustain the economy and support the ensuing recovery. When 
economic  conditions  allow,  pursue  fiscal  policies aimed  at  achieving  prudent 
medium-term  fiscal  positions  and  ensuring  debt  sustainability, while  enhancing 
investment.  Improve  the  resilience  of  the  health  system  by  ensuring  appropriate 
availability of health workers. Accelerate reforms to improve the governance of the 
health system and e-Health.  

Mitigate the employment impact of the crisis, with special consideration for people 
in a difficult labour market position. 

Ensure effective implementation of measures supporting the liquidity of businesses, 
in  particular small and  medium-sized enterprises and the self-employed.  Front-load 
mature  public  investment  projects  and  promote  private  investment  to  foster  the 
economic recovery. Focus investment on the green and digital transition, in particular 
on  sustainable  transport  and  buildings,  clean  and  efficient  production  and  use  of 
energy,  contributing  to  a  progressive  decarbonisation  of  the  economy.  Foster 
innovation and digitalisation in particular in the business sector. 

7 

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

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4. 

Ensure  effective  supervision  and  enforcement  of  the  anti-money  laundering 
framework  as  regards  professionals  providing  trust  and  company  services,  and 
investment  services.  Step  up  action  to  address  features  of  the  tax  system  that 
facilitate aggressive tax planning, in particular by means of outbound payments. 

Done at Brussels, 

For the Council 
The President 

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