COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Luxembourg Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Luxembourg
Date: 2021-06-18
Institutions: European Commission, Secretariat-General
Subjects: EU aid, Luxembourg, coronavirus disease, economic and social cohesion, economic recovery, economic reform, epidemic, investment, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 18.6.2021  SWD(2021) 159 final  COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Luxembourg Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Luxembourg {COM(2021) 332 final}  
 
 
Table of contents 
1. 

Executive summary ............................................................................................................................... 2 

2.  Recovery and resilience challenges: scene-setter ................................................................................ 6 

2.1.  Macroeconomic outlook and developments since the 2020 country report ............................... 6 

2.2. 
Challenges related to sustainable growth, cohesion, resilience and policies for the next 
generation ................................................................................................................................................. 8 

2.3. 

Challenges related to the green and digital transition ............................................................... 11 

Green dimension ................................................................................................................................. 11 

Digital dimension ................................................................................................................................ 14 

3.  Objectives, structure and governance of the plan.............................................................................. 20 

3.1.  Overall strategy of the plan ........................................................................................................ 20 

3.2. 

Implementation aspects of the plan ........................................................................................... 22 

4. 

Summary of the assessment of the plan ............................................................................................ 26 

4.1. 

Comprehensive and adequately balanced response to the economic and social situation ...... 26 

4.2. 

Link with country-specific recommendations and the European Semester ............................... 30 

4.3.  Growth potential, job creation, economic, institutional and social resilience, European Pillar of 
Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence ...... 37 

4.4. 

The principle of ‘do no significant harm’ .................................................................................... 42 

4.5.  Green transition .......................................................................................................................... 43 

4.6. 

Digital transition .......................................................................................................................... 46 

4.7. 

Lasting impact of the plan ........................................................................................................... 48 

4.8.  Milestones, targets, monitoring and implementation................................................................ 49 

4.9. 

Costing ........................................................................................................................................ 51 

4.10.  Controls and audit ....................................................................................................................... 53 

4.11.  Coherence ................................................................................................................................... 56 

1 

 
 
 
 
 
 
 
1.  EXECUTIVE SUMMARY 

Luxembourg was one of the Member States less severely hit by the economic consequences 
of the COVID-19 crisis. Real GDP fell by 1.3% in 2020 (compared with 6.1% in the EU as a 
whole),  with  GDP  in  the  fourth  quarter  of  2020  outpacing  its  pre-crisis  level.  The  rebound  in 
GDP  growth  is  expected  to  reach  4.5%  in  2021,  followed  by  3.3%  in  2022.  Job  creation 
continued  in  2020,  with  employment  expanding  by  2.0%  (against  3.6%  in  2019),  mainly 
sustained by unprecedented  government support. Accordingly, the  general  government  balance 
deteriorated sharply, as in other Member States, flipping from a surplus of 2.4% of GDP in 2019 
to a deficit of 4.1% of GDP in 2020. Luxembourg should return to a close-to-balance position by 
2022, provided current vaccination trends and economic developments gain traction. Public debt 
is  expected  to  peak  from  22%  of  GDP  in  2019  to  27%  in  2021  and  to  slightly  decrease 
subsequently.  

Despite its overall good performance, Luxembourg’s economy faces a set of interconnected 
challenges. It is among the most advanced in the EU in terms of GDP growth dynamics, sound 
public  finances,  living  standards,  productivity,  and  connectivity.  Nevertheless,  challenges  exist 
in  several  areas  and  are  intertwined.  Concerning  the  high  level  of  corporate  income  taxation 
revenues,  they  could  come  under  pressure  due  to  changes  in  the  international  corporate  tax. 
Challenges to the labour market include growing skills shortages, also in strategic sectors such as 
healthcare.  Furthermore,  house  prices  have  been  increasing  strongly  in  recent  years,  reflecting 
limited  supply  in  the  face  of  strong  demand,  bringing  about  a  lack  of  affordable  housing. 
Although the health system fared comparatively well in coping with the unprecedented pressures 
from the pandemic, the crisis has shown that a more resilient health system would not only help 
manage  potential  future  shocks,  but  also  help  tackle  more  structural  challenges,  such  as 
population  ageing.  In  addition,  fighting  aggressive  tax  planning  is  essential  to  avoid  the 
distortion  of  competition  between  firms  operating  in  the  single  market.  Finally,  Luxembourg 
faces significant money laundering risks. 

Luxembourg  has  requested  EUR  93.4  million  of  non-repayable  support,  equivalent  to 
0.15%  of  2019  GDP  and  close  to  the  maximum  financial  contribution  allocated  to 
Luxembourg under the Recovery and Resilience Facility (EUR 93.5 million). Luxembourg 
did  not  request  any  loan.  The  recovery  and  resilience  plan  of  Luxembourg  is  expected  to 
contribute significantly to the green and digital transition, while the components related to skills, 
health, housing and governance also  significantly support  cohesion and growth potential in  the 
long  term.  The  plan  is  structured  along  eight  components  aimed  at  tackling  Luxembourg’s 
structural issues, which the COVID-19 crisis evidenced and exacerbated. Measures included in 
the plan complement the national economic measures introduced by Luxembourg in 2020 under 
the  COVID-19  Economic  Stabilisation  Programme  and  the  Recovery  Programme  (Neistart 
Lëtzebuerg),  and  are  consistent  with  the  2021  National  Reform  Programme  and  the  Stability 
Programme. The plan includes a number of measures totalling EUR 183.1 million, but specifies 
that  they  will  also  be  financed  by  national  funds,  which  brings  the  Recovery  and  Resilience 
Facility  (RRF)  contribution  to  EUR  93.4  million  (51%  of  the  total  estimated  costs  of  all 

2 

 
 
measures  mentioned  in  the  plan),  while  the  national  budget  will  fund  46%,  and  other  EU 
instruments are expected to fund the remaining 3% of the total estimated cost. 

The  plan  pursues  the  general  objective  of  the  Facility  to  promote  the  Union’s  economic, 
social  and  territorial  cohesion  and  is  balanced  in  its  response  to  the  six  policy  pillars 
referred to in Article 3 of the Regulation1. Considering all reforms and investments envisaged, 
taking the specific challenges and the financial allocation of Luxembourg into account, the plan 
represents to a large extent a comprehensive, and adequately balanced response to the economic 
and  social  situation.  The  green  and  digital  pillars  with  respectively  60.9%  and  31.6%  of  the 
plan’s  estimated  total  cost,  are  well  above  the  minimum  allocation  targets  set  out  in  the 
Regulation. The plan also includes coherent measures on digital skills and public services, clean 
transport  and  biodiversity  as  axes  for  recovery,  which  are  expected  to  contribute  to  “smart, 
sustainable,  and  inclusive  growth”  and  “social  and  territorial  cohesion”.  Finally,  the  pillar  on 
social cohesion is also well addressed, notably by strengthening the resilience of the healthcare 
system, by improving the functioning of the housing market and by improving digital inclusion 
through  the  skills  programmes  and  digitalisation  of  the  public  administration.  The  latter 
component  rightly  differentiates  between  firms  and  citizens,  each  one  with  a  dedicated  virtual 
platform, which is in line with the user-centric approach described in the strategy. This structure 
is  expected  to  better  address  the  user’s  needs,  to  promote  digital  inclusion  in  the  society  and 
digital  integration  in  the  business  sector.  The  RRF  also  contributes  to  an  ambitious  R&I 
investment component, which is part of a larger EU project in  cooperation with other Member 
States,  with  high  potential  to  foster  Luxembourg’s  economic  diversification  and  private 
investment in the long run. 

The  plan  is  expected  to  contribute  to  addressing  a  significant  subset  of  country-specific 
recommendations issued to Luxembourg in 2019 and 2020. Given the small RRF maximum 
financial contribution available to Luxembourg, the structure of the plan, including the national 
and  other  EU  co-financing,  allows  the  investment  measures  to  cover  a  wider  range  of  policy 
areas, with measures aimed at improving the health system’s resilience, labour market inclusion, 
labour supply, and investment  in the green and digital  transitions.  The plan is  expected to  also 
contribute to addressing the shortage of affordable housing and the sustained increase in housing 
prices.  It  is  expected  to  contribute  to  the  green  transition  through  investments  in  renewable 
energy  generation,  sustainable  transport,  and  natural  environment  and  biodiversity.  The  plan’s 
support  to  skilling  programmes  and  to  research  and  innovation  in  the  field  of  communication 
technologies  are  key  to  foster  growth  in  the  long  term  and  develop  resilience  against  the 
backdrop of technological changes. It also offers opportunities for economic diversification and 
business  investment.  The  measures  to  foster  digital  inclusion,  such  as  digital  training 
programmes  and  digital  public  services,  also  address  vulnerabilities  identified  in  previous 
country  reports  and  country  specific  recommendations,  and  monitored  through  the  Social 

1 Regulation (EU) 2021/241 of the  European Parliament and of the  Council of 12 February 2021 establishing the 
Recovery and Resilience Facility (hereafter ‘the RRF Regulation’). 

3 

 
 
                                                           
Scoreboard.  On  anti-money  laundering  (AML)  and  counter  terrorist  financing  (CTF),  the  plan 
includes  a  combination  of  measures  to  improve  the  quality  of  information  in  the  Business 
Register, to assess potential flaws in risk mitigation procedures, and to strengthen the oversight 
framework  for  trust  and  company  service  providers.  However,  the  plan  does  not  adequately 
address features of the tax system that facilitate aggressive tax planning, in particular by means 
of outbound payments. The plan includes a training programme with a dedicated target for older 
workers  which  should  help  improve  their  employability  and  their  participation  in  the  labour 
market  although  it  would  be  more  effective  in  combination  with  other  policy  instruments 
available for the purposes of achieving a more sustainable and inclusive  growth as well as the 
long-term  sustainability  of  the  pension  system,  and  ultimately  the  sustainability  of  public 
finance.  

The  green  transition  is  a  key  priority,  with  60.9%  of  the  total  allocation  of  the  plan 
contributing  to  the  climate  objective.  The  assessment  against  the  principle  of  ‘do  no 
significant  harm’  provides  reassurance  that  the  implementation  framework  will  prevent 
any  significant harm.  The  plan  includes  a  systematic  assessment  of  each  measure  against  the 
principle  of  ‘do  no  significant  harm’,  for  each  of  the  six  environmental  objectives  within  the 
meaning  of  Article  17  of  the  Taxonomy  Regulation2,  which  allows  to  assess  that  all  measures 
will comply with the principle. One out of the three pillars of the plan is fully dedicated to the 
green transition, and a renewable energy project also contributes to it. Overall, 60.9% of the total 
allocation in the plan contributes to the climate objective. The measures set out in the plan follow 
up  to  and  are  consistent  with  the  orientations  outlined  in  Luxembourg’s  National  Energy  and 
Climate Plan (NECP), and they focus prominently on sustainable mobility and renewable energy 
generation,  in  line  with  two  of  the  European  flagships  included  in  the  Commission’s  Annual 
Sustainable  Growth  Strategy,  the  ‘Recharge  and  refuel’  and  ‘Power  up’  flagships.  The  plan 
includes a component to support natural environment and biodiversity protection and restoration. 
Due  to  the  limited  maximum  financial  contribution  under  the  RRF,  the  plan  focuses  on 
addressing certain challenges and, for instance, energy renovation of buildings does not feature 
prominently  in  any  investment  measure.  Most  measures  described  in  the  plan  are  expected  to 
have a lasting impact towards the green transition.  

The recovery and resilience plan is expected to largely contribute to the digital transition of 
Luxembourg with a broad and cross-cutting approach. Digital measures cover research and 
innovation,  deployment  of  new  technologies,  digitalization  of  the  public  administration, 
territorial institutional and social cohesion, which are expected to engage the private sector in the 
transition.  Investments  are  also  planned  in  digital  skills,  digital  connectivity,  and  eHealth.  In 
particular, measures aiming at improving digital inclusion of the population and workers as well 
as  the  digitalisation  of  SMEs  have  the  potential  to  increase  productivity  growth3.  The  plan 

2 Regulation (EU) No 2020/852 
3  Bauer,  P.,  Fedotenkov,  I.,  Genty,  A.,  Hallak,  I.,  Harasztosi,  P.,  Martínez-Turégano  D.,  Nguyen  D.,  Preziosi,  N., 
Rincon-Aznar, A., Sanchez-Martinez, M., Productivity in Europe – Trends and drivers in a service-based economy, 

4 

 
 
                                                           
 
 
dedicates  more  than  31.6%  of  its  total  allocation  to  the  digital  transition.  The  main  projects 
contributing  directly  to  this  target  are  various  investments  consisting  in  the  digitalisation  of 
several  public  administrations  and  the  health  system,  and  the  support  to  innovation  in 
communication  technologies.  The  measures  are  also  aligned  with  various  European  initiatives 
like the EU Digital Strategy, the EU Skills Agenda, the European Education Area and the Digital 
Education Action Plan. The measures in the plan are also aligned with two out of six European 
flagships  included  in  the  Commission’s  Annual  Sustainable  Growth  Strategy:  Modernise,  that 
concerns  the  digitalisation  of  the  public  administration  and  Reskill-upskill,  which  focuses  on 
education and training to support digital skills. 

Luxembourg’s plan has the potential to have a lasting impact by contributing to bringing 
about  structural  changes.  The  impact  assessment  presented  in  the  plan  is  of  a  qualitative 
nature, given the limited size of Luxembourg’s maximum financial contribution. In this light, the 
plan is expected to contribute to the national strategies aiming to provide an adequate response to 
the  health  crisis,  and  to  paving  the  way  for  a  sustainable,  digital  and  resilient  economy.  The 
envisaged  measures  are  expected  to  help  Luxembourg  in  diversifying  its  economic  activity, 
creating new investment opportunities, and embarking on a more resilient growth path. Specific 
actions  aim  at  strengthening  the  administration  and  institutions,  in  particular  in  relation  to  the 
digital  transition.  The  measures  aimed  at  bolstering  the  participation  and  skills  of  the  labour 
force,  the  functioning  of  the  housing  market,  and  the  digitalisation  of  the  broad  public 
administration  are  expected  to  have  the  greatest  longer-term  impact,  notably  on  labour  supply 
and skills, improving job creation, labour productivity and investment, therefore paving the way 
for a more sustainable, resilient and inclusive economic growth.  

The  justifications  provided  by  Luxembourg  supporting  the  estimated  total  costs  of  the 
recovery and resilience plan are to a sufficient extent plausible and reasonable, in line with 
the  principle  of  cost-efficiency  and  commensurate  to  the  expected  national  economic  and 
social impact. Luxembourg provided sufficient information and evidence that the amount of the 
cost of the reforms and investments to be financed under the Facility is not covered by existing 
or planned Union financing. 

Finally,  the  Luxembourg  recovery  and  resilience  plan  contains  measures  for  the 
implementation  of  reforms  and  public  investments,  which,  to  a  large  extent,  represent 
coherent actions. The eight components form  a coherent package of investments and reforms, 
both within the components and between the components. The overall quality of milestones and 
targets is satisfactory. The description of milestones and targets in each component of the plan is 
generally  clear  and  realistic.  In  particular,  the  targets  and  milestones  are  clear  and  specific 
enough to track progress in the implementation of reforms and investments. 

EUR  30076  EN,  Publications  Office  of  the  European  Union,  Luxembourg,  2020,  ISBN  978-92-76-10610-4, 
doi:10.2760/469079, JRC119785. 

5 

 
 
                                                                                                                                                                                           
 
Table 1 details the assessment criteria ratings developed in this Staff Working Document that led 
to the approval of the Luxembourg recovery and resilience plan under the RRF Regulation. 

Table  1.  Summary  of  the  recovery  and  resilience  plan  of  Luxembourg  assessment  for  the  11 
criteria set by the RRF Regulation. 

(1)  
Balanced 
Response  

A or B  

A  

(2)  
CSRs  

(3)  
Growth, 
jobs…  

(4)  
DNSH  

(5)  
Green 
target  

(6)  
Digital 
target  

(7)  
Lasting 
impact  

(8)  
M & T  

(9)  
Costing  

(10)  
Control 
Systems  

(11)  
Coherence  

A  

A 

A  

A 

A  

A 

A  

A 

A  

A 

A or B  

A or B  

A or B  

A 

A 

B 

A  

A 

A or B  

A  

2.  RECOVERY AND RESILIENCE CHALLENGES: SCENE-SETTER 

2.1. Macroeconomic outlook and developments since the 2020 country report  

The  macroeconomic  scenario  underpinning  Luxembourg’s  stability  programme  and  the 
recovery  and  resilience  plan  (plan)  projects  real  GDP  growth  of  4.0%  in  2021  after  a 
limited decline of 1.3% in 2020 caused by the COVID-19 crisis. The relative resilience of the 
Luxembourg  economy  in  2020  was  linked  to  the  support  measures  of  the  Luxembourg’s 
government  and  the  large  service  sector  of  the  economy,  which  allowed  a  quick  switch  to 
teleworking4.  Growth  is  projected  to  reach  2.6%  in  the  medium  term.  Inflation  is  expected  to 
pick up to 1.8% in 2021 and after to trend towards the ECB objective of an inflation rate close to 
2%.  Regarding  the  labour  market  the  Luxembourg  authorities  forecast  a  gradual  increase  in 
unemployment which would reach 7.5% in 2025 after a small improvement in 2022. 

The  Commission  forecasts  a  similar  macroeconomic  scenario  for  2021  and  2022  as 
Luxembourg’s government. As a larger share of the population is getting vaccinated, remaining 
restrictions should be gradually lifted from the second quarter of 2021. The increase in private 
consumption allowed by the easing of restrictions and the high level of savings, combined with 
the strong fundamentals of the Luxembourg economy, will fuel renewed economic growth. Real 
GDP is forecast to grow by 4.5% in 2021 and by 3.3% in 2022. GDP has reached its pre-crisis 
level already in the last quarter of 2020. 

In 2020, annual HICP inflation declined to 0.0%, mainly reflecting the large drop in oil prices 
and  the  introduction  of  free  public  transport  in  March  2020.  In  2021,  the  expected  increase  of 
inflation to 2.1% is supported by higher oil prices and the introduction of a carbon tax. Service 
inflation is projected to increase over the period but remains below the 2019 inflation rate due to 

4  Sostero  M.,  Milasi  S.,  Hurley  J.,  Fernández-Macías  E.,  Bisello  M.,  Teleworkability  and  the  COVID-19  crisis:  a 
new digital divide?, Seville: European Commission, 2020, JRC121193. 

6 

 
 
 
                                                           
lower  expected  wage  growth  in  2021.  Inflation  is  expected  to  moderate  to  1.6%  in  2022,  as 
energy prices stabilise. 

The government’s short-term work scheme has supported employment levels and protected 
household  income.  The  short-term  work  scheme  has  cushioned  about  62%  of  the  shock  in 
household market incomes in 20205. However, an expected increase in bankruptcies should lead 
to an increase in unemployment. The strong employment growth of recent  years is expected to 
slow down from above 3% to about 2% in 2021. The growth in employment is expected to be 
outpaced  by  the  growth  of  the  labour  force,  pushing  the  unemployment  level  close  to  7.4%  in 
2021. The slowdown in the labour market is expected to limit wage growth in 2021. The labour 
market situation is forecast to improve in 2022 in line with the growing economy. 

Poverty and inequality have increased in recent years despite the positive impact of social 
transfers. In 2018, Luxembourg registered one of the highest increases in income inequality in 
the  EU.  This  was  partly  due  to  housing  market  developments,  namely  soaring  house  and  rent 
prices and a limited supply of affordable housing. The overall risk of poverty or social exclusion 
rose to 21.9 % in 2018, reaching the EU average. The newly implemented ‘Revenu d’inclusion 
sociale’, a benefit replacing the minimum guaranteed revenue as of 2019, as well as the cost-of-
living allowance introduced in 2021, are expected to improve social inclusion.  

In 2020, the general government balance deteriorated sharply, due to the COVID-19 crisis, 
as in other Member States, flipping from a surplus position in 2019 to a deficit of 4.1% of 
GDP. According to the Commission’s 2021 Spring Forecast, the general government balance is 
expected to  improve to  a deficit of 0.3% of GDP in  2021 and of 0.1% in 2022. Public debt  is 
expected to increase from 24.9% of GDP in 2020 to 27.0% in 2021 and to slightly decrease to 
26.8%  in  2022.  According  to  the  Commission’s  2020  debt  sustainability  monitor,  debt  is 
expected to reach only 17.9% of GDP in 2031. Hence, Luxembourg’s debt continues to be on a 
sustainable path and has a low medium-term risk. However, the long-term sustainability risk is 
high, driven by the projected increase in age-related expenditure. The Luxembourg authorities’ 
debt projections are slightly more conservative, with a debt level of 28.4% of GDP in 2023 and 
27.6% in 2025. 

The macroeconomic and fiscal outlook continues to be affected by high uncertainty related 
to the COVID-19 pandemic and its economic consequences. The macroeconomic scenario of 
the  plan  is  plausible  and  similar  to  the  one  outlined  in  the  2021  budget,  national  reform 
programme,  stability  and  convergence  programme  and  has  been  developed  by  the  statistical 

5 See Christl, M, De Poli, S., Figari, F., Hufkens, T., Leventi, C., Papini, A. and Tumino, A. (2021) “The cushioning 
effect of fiscal policy in the EU during the COVID-19 pandemic”, JRC Working Papers on Taxation and Structural 
Reforms,  02/2021  (forthcoming  at  https://ec.europa.eu/jrc/en/thematic-research-fiscal-policy/jrc-working-papers-
taxation-and-structural-reforms). 

7 

 
 
                                                           
office  (STATEC).  Minor  differences  between  the  latest  Commission  forecast  and  the 
macroeconomic  scenario  underpinning  the  plan  are  linked  to  the  most  recent  data  on 
employment and tax revenue. 

In  the  2021  macro  imbalances  procedure  (MIP)  no  imbalances  were  identified  for 
Luxembourg. In the updated scoreboard, which includes figures until 2019, the growth of unit 
labour costs, the increase in house prices and the private sector debt indicators were above the 
indicative thresholds. Following the COVID-19 crisis in 2020, the increase in unit labour costs is 
expected to slow down in 2020 and 2021 (2.6% and -0.2% in the Commission’s Spring forecast 
vs  3.0%  in  2019).  However,  house  prices  and  private  sector  debt  are  expected  to  continue  to 
increase. The private sector debt-to-GDP ratio is very high, at 319%, and mainly reflects the high 
corporate debt, above 250% of GDP in 2019. However, this figure is the result of Luxembourg’s 
role  as  a  global  financial  centre  and  the  cross-border  intra-group  lending.  Household  debt 
stabilised  in  2019  at  66%  of  GDP  and  is  well  below  both  the  fundamental  and  prudential 
benchmarks.  Still,  Luxembourg’s  high  level  of  household  debt  as  a  percentage  of  disposable 
income  and  the  increasing  pressure  on  house  prices  caused  by  the  low  supply  of  new  houses 
require a continued monitoring of mortgage credit growth and household indebtedness. Overall, 
the Commission did not consider it necessary to carry out further in-depth analysis in the context 
of the 2021 MIP. 

Table 1. Comparison of macroeconomic developments and forecast 

2.2. Challenges  related  to  sustainable  growth,  cohesion,  resilience  and  policies  for  the 

next generation  

Despite its overall good performance, Luxembourg’s economy faces a set of interconnected 
challenges. It is among the most advanced in the EU in terms of GDP growth dynamics, sound 
public  finances  (reflected  in  the  AAA  credit  rating  with  a  stable  outlook),  living  standards, 

8 

 
 
 
 
productivity,  and  connectivity.  Nevertheless,  challenges  exist  in  several  areas  and  are 
intertwined.  

The  high  level  of  corporate  income  taxation  revenues  and  large  contribution  from  the 
financial  services  sector  reflect  Luxembourg’s  international  position  as  a  global  financial 
hub. Yet, ongoing changes in the international corporate tax system are likely to put pressure on 
Luxembourg’s revenues from corporate income tax, especially at a time when the public finances 
are  impacted  by  the  current  crisis.  Environmental  tax  revenues  are  below  the  EU  average  and 
have decreased over the last years, before the introduction of a CO2 tax from 2021. Luxembourg 
could therefore explore options to diversify its fiscal revenues and foster inclusive growth. This 
could  include  measures  to  help  curb  house  price  inflation,  which  has  increased  inequality  and 
risks lowering the country’s attractiveness to skilled workers who are crucial to the economy. In 
light of population ageing projections for Luxembourg, the low average retirement age puts the 
pension  system  under  pressure.  This  would  require  phasing  out  early  retirement  schemes  and 
other  fiscal  incentives,  which  favour  early  retirement.  Measures  that  increase  employment 
opportunities,  notably  through  life-long  learning  schemes,  would  also  help  improve  the  long-
term sustainability of the pension system.  

Productivity is not perceptibly higher today than 20 years ago, and in the last 5 years the 
country  has  fallen  nine  positions  in  the  IMD6  World  Competitiveness  Yearbook  ranking. 
Luxembourg  is  among  the  most  competitive  countries  in  international  comparisons.  However, 
price competitiveness is being eroded and might lower the country’s attractiveness for firms and 
skilled  workers,  on  whom  the  economy  is  highly  dependent.  The  National  Productivity  Board 
annual report 2019, published in March 2020, summarised the views of the IMF, the OECD and 
the  European  Commission  on  Luxembourg’s  productivity  and,  in  this  light,  proposed  potential 
aspects of productivity to analyse in future reports, in the perspective of possible policy actions. 
Business  investment  in  R&D  remains  low  and  appear  insufficient  to  significantly  foster 
productivity  growth.  Increased  and  more  coordinated  public  and  private  investments  in  R&D, 
coupled  with  stronger  linkages  between  the  public  research  ecosystem  and  the  private  sector, 
could play a key role in stimulating growth and easing the transition to a data-driven and green 
economy.  

Challenges to the labour market include growing skills shortages. Ensuring the availability 
of skilled workers is among Luxembourg’s main challenges, including in strategic sectors such 
as  healthcare.  Total  domestic  employment  continued  to  grow  in  2020.  Yet,  the  overall 
employment  rate  remains  below  the  EU  average,  due  to  the  early  retirement  age  of  the  older 
population and the very high inactivity rate of the young (around 70%) due to their longer stay in 
education.  Moreover,  upskilling  and  reskilling  of  workers  and  jobseekers  will  have  to  play  a 

6 https://worldcompetitiveness.imd.org/rankings/wcy 

9 

 
 
                                                           
more important role at all education levels, while the share of jobs requiring higher education has 
raised significantly over the last decade and face increasing labour shortages.  

The lack of affordable housing is one of the main challenges faced by Luxembourg.  House 
prices have been increasing strongly in  recent  years, mainly due to  limited construction, in  the 
face of strong demand. The issue of affordable housing is exacerbated by the current crisis and is 
the main reason of the relatively high level of household debt in terms of disposable income. A 
key  opportunity  to  embark  on  a  sound  recovery  and  resilience  path  is  to  increase  the  public 
supply of affordable housing and to deploy a clean and efficient public transport system, which 
can satisfy sustainability standards and connectivity needs across the country. In this respect, the 
Summit  of  Greater  Region7  plays  also  a  role  in  addressing  most  of  the  country’s  interregional 
challenges.  Other  opportunities  for  territorial  cooperation  include  technological  diffusion  and 
economies of scale from joint research projects, natural resources management, or regional value 
chains,  including  under  the  2021-2027  European  territorial  cooperation  programmes  supported 
by the ERDF.  

Luxembourg’s  health  system  fared  comparatively  well  in  coping  with  the  unprecedented 
pressures  from  the  pandemic.  However,  the  crisis  has  shown  that  a  more  resilient  health 
system would not only help manage potential future shocks, but also help tackle more structural 
challenges, such as population ageing. The latter is reflected in the projected increases in public 
spending  in  the  health  sector.  Therefore,  reforms  and  investment  should  prioritise  systemic 
issues, such as: (i) addressing the lack of resident healthcare professionals (which may affect the 
resilience of the healthcare system); (ii) scaling up e-health; (iii) improving governance based on 
better  health  information  systems;  (iv)  moving  towards  more  community-based  care  integrated 
services; (v) responding to the needs of the growing population with long-term conditions; and 
(vi) more preventive approaches. 

in  2020, 

laundering  risks,  and 

the  Council 
Luxembourg  faces  significant  money 
recommended that Luxembourg take action to ensure the effective supervision and enforcement 
of  the  anti-money  laundering  framework  for  professionals  providing  services  to  trusts  and 
companies, as well as investment services. Money laundering risks are related to the high inflows 
of foreign direct investment and the presence of complex legal structures with foreign sponsors. 
These risks are reflected in the national risk assessment, particularly in relation to professionals 
that  provide  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. The quality of the information 

7 http://www.granderegion.net/Institutions/Le-Sommet-en-detail/Sommet2 

10 

 
 
                                                           
provided in the national register of beneficial owners, and the effectiveness of the register need 
to be monitored over time. 

Fighting aggressive tax planning is essential to avoid the distortion of competition between 
firms  operating  in  the  single  market.  Despite  the  size  of  Luxembourg’s  financial  sector,  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.  Given  the 
cross-border nature of aggressive tax planning, it is important to combine action at the national 
level with coordinated action at the EU level. This coordination has taken place through various 
fora: adoption of Directives by the Council, Code of Conduct group, and the European Semester.  

2.3. Challenges related to the green and digital transition  

Green dimension  

The recovery and resilience plan should contribute to the green transition and at least 37% 
of the financial allocation needs to contribute to climate objectives. The measures in the plan 
shall  contribute  to  achieving  the  2050  climate  neutrality  objective,  and  the  2030  energy  and 
climate  targets,  taking  into  account  Member  States’  national  energy  and  climate  plans.  They 
should  also  contribute  to  meeting  environmental  targets  for  waste,  water,  pollution  control, 
sustainable  mobility,  biodiversity  protection  and  restoration,  marine  and  water  resources,  and 
support the transition to sustainable food systems as well as to a circular economy as appropriate, 
while ensuring that nobody is left behind.  

Climate and energy challenges 

Despite Luxembourg’s strong ambition, significant challenges persist to achieve the green 
transition. Further investment is needed in sustainable transport, renewable energy and energy 
efficiency, and to increase the supply of sustainable and affordable housing.  

Luxembourg  still  has  the  highest  greenhouse  gas  (GHG)  emissions  per  capita  in  the  EU, 
despite  a  relatively  less  carbon-intensive  economy.  Luxembourg’s  economy  is  now  less 
carbon-intensive  than  the  EU  average8,  following  the  country’s  transformation  since  the  1970s 
from  an  industrial  (iron  and  steel)  economy  to  a  service-focused  economy9,  and  thanks  to 
efficiency  gains.  However,  and  despite  a  sharp  decrease  in  recent  years,  in  2019,  Luxembourg 
remained  the  EU  country  with  the  highest  GHG  emissions  per  capita10.  Transport  is  the  main 

8 214 gCO2eq per euro of GDP according to preliminary data for 2019, compared to 282 gCO2eq per euro of GDP at EU level. 
9 In Luxembourg, services account for 87.3% of total GDP in 2019, compared to 72.9% for the EU – European Commission 
(2020). National accounts and GDP, https://ec.europa.eu/eurostat/statistics-
explained/index.php/National_accounts_and_GDP#Gross_value_added_in_the_EU_by_economic_activity 
10  20.4 tCO2eq,  more  than  double the  EU  average  (8.4  tCO2eq) – European  Commission  (2020).  EU  Climate  Action Progress 
Report 2020, https://ec.europa.eu/clima/sites/clima/files/strategies/progress/docs/com_2020_777_en.pdf 

11 

 
 
 
                                                           
source of emissions (50% in 201811), reflecting Luxembourg’s position as a logistical hub and its 
large  cross-border  commuting  workforce  (45%  of  its  total  workforce),  who  contribute  to  the 
GHG emissions level, but are not counted as part of the population12.  

Before the pandemic, Luxembourg was set to miss its climate and energy targets for 2020. 
The  country  will  need additional  measures  to  reach  2030  climate  objectives.  According  to 
preliminary  data,  in  2019,  Luxembourg  missed  its  GHG  emissions  reduction  target  under  the 
Effort Sharing Regulation of 18% compared to 2005 levels, by 9 percentage points, and, without 
additional measures, is also expected to miss its 2030 objective (40% reduction compared with 
2005)  by  24  percentage  points.  Luxembourg  would  need  to  continue  its  efforts  to  achieve  its 
binding target to reach a renewable energy share of 11% by 2020 and will probably continue to 
use  cooperation  mechanisms  to  transfer  renewable  energy  statistics.  It  is  also  at  risk  of  not 
fulfilling its 2020 energy efficiency target.  

In May 2020, Luxembourg adopted an ambitious National Energy and Climate Plan and, 
in  December  2020,  a  Climate  Protection  Law  aiming  for  climate  neutrality  by  2050, 
increasing Luxembourg’s 2030 targets (to reduce GHG emissions by 55% compared to 2005 and 
reach a 25% renewable share) and setting targets in several sectors13. To reach climate neutrality, 
Luxembourg will need to strongly reduce emissions in the transport and building sectors. 

To  make  progress  on  these  targets,  significant  investment  is  needed  to  increase  energy 
efficiency  for  both  households  and  businesses.  Luxembourg  needs  to  invest  in  particular  in 
energy  efficient  construction  (and  creating  links  to  address  the  persistent  undersupply  of 
housing)  and  the  renovation  of  residential  buildings,  as  well  as  in  energy  efficient  production 
processes and business models, in line with the recently updated EU industrial strategy14.  

The  development  and  use  of  renewable  energy  needs  to  be  accelerated,  as  does  the 
integration  of  renewables  in  the  energy  mix  through  modernised  networks  and  better 
integration  of  sectors.  Luxembourg  needs  to  support  renewable  energy-based  systems  in 
buildings  and  businesses.  It  needs  to  invest  in  renewable  energy  generation  both  domestically 
and through cooperation projects with other Member States15. Luxembourg should also explore 
the  possibility  of  decarbonising  the  steel  sector  through  renewable  hydrogen.  Investment  in 
infrastructure should also support the increase in renewable electricity, improve the flexibility of 

11  As  a  %  of  total  greenhouse  gas  emissions  (without  land  use,  land  use  change  and  forestry  –  LULUCF,  with  international 
aviation). Source: https://www.eea.europa.eu/data-and-maps/data/data-viewers/greenhouse-gases-viewer 
12  44.5%  of  emissions  from  sectors  not  covered  by  the  EU  Emission  Trading  System  come  from  non-resident  road  transport 
(cross-border commuters, cars and heavy goods vehicles in transit, ‘fuel tourism’); 32.5% come from the sale of fuels to heavy 
goods vehicles in transit (source: Ministry of Environment). 
13 Economidou, M., Ringel, M., Valentova, M., Zancanella, P., Tsemekidi Tzeiranak, S., Zangheri, P., Paci, D., Ribeiro Serrenho, 
T., Palermo, V. and Bertoldi, P., National Energy and Climate Plans for 2021-2030 under the EU Energy Union, EUR 30487 EN, 
Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-27013-3, doi:10.2760/678371, JRC122862. 
14  Communication  from  the  Commission  “Updating  the  2020  New  Industrial  Strategy:  Building  a  stronger  Single  Market  for 
Europe’s recovery”, COM(2021)350 final, 5.5.2021. 
15 Notably in the North Sea, and through EU cooperation mechanisms (Luxembourg already engaged in agreements for statistical 
transfers with Lithuania and Estonia, and could further benefit from the new EU Renewable Energy Financing Mechanism) 

12 

 
 
                                                           
the energy  grid,  and strengthen  and expand  electricity transmission and distribution lines, both 
domestically and with neighbouring countries.  

The table below gives an overview of Luxembourg’s objectives, targets and contributions under 
Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 
on the Governance of the Energy Union and Climate Action. 

National targets and contributions  

Binding target for greenhouse gas 
emissions compared to 2005 under the 
Effort Sharing Regulation (%) 

National target/contribution for 
renewable energy: Share of energy from 
renewable sources in gross final 
consumption of energy (%) 

Latest 
available 
data 

2020 

2030 

Assessment of 2030 
ambition level 

-10% 

-20% 

-40% 

9.1%  

11% 

25% 

More ambitious 
national target of -
 55% 

Sufficiently 
ambitious 
(The result of the 
RES formula is 
22%) 

National contribution for energy efficiency: 

Primary energy consumption (Mtoe) 

Final energy consumption (Mtoe) 

4.46 

4.35 

4.48 

20% 
4.24 

3.61 

N/A 

40-44% 
3.06 

Sufficient 

Level of electricity interconnectivity (%) 

X 

270% 

400% 

N/A 

Sources: Assessment of Luxembourg’s final national energy and climate plan, SWD(2020) 915 final. Forecast for 
primary energy consumption in 2030 communicated by Luxembourg to the Commission in December 2020. 

Mobility 

Mobility  issues  weigh  significantly  on  Luxembourg’s  environmental  sustainability,  as 
transport is responsible for almost half of national GHG emissions, reflecting Luxembourg’s 
position as a logistical hub and its large cross-border commuting workforce. With low fuel taxes 
and  very  high  housing  prices,  the  massive  and  increasing  numbers  of  cross-border  commuters 
that strongly rely on private cars contribute to road traffic congestion. This impacts air quality, 
causes productivity losses and can eventually damage Luxembourg’s attractiveness. 

Luxembourg’s  mobility  strategy  was  recently  revamped.  The  country  expanded  its  2018 
‘Modu 2.0’ strategy to include ambitious projects and large budgetary investments, and outlined 
a cross-border approach in the last quarter of 2020. It also made all public transport (bus, tram, 
train)  free  of  charge  as  of  1 March  2020,  to  increase  its  attractiveness.  The  effects  of  this 
measure, including on air quality, still need to be assessed. 

Significant investment is needed to improve the connectivity and mobility of the  transport 
network. Of particular importance are projects to improve tram connections and to continue to 
add  lines  to  the  network  in  the  coming  years,  and  progress  on  projects  to  create  a  multimodal 
corridor (such as  the planned line between the southern area of the capital  and Esch-Belval  by 
2030).  Projects  supporting  the  trans-European  transport  network  (TEN-T)  infrastructure, 

13 

 
 
 
 
 
 
 
 
 
 
 
 
 
including completing the modernisation of the Brussels-Luxembourg-Strasbourg railway link by 
2022,  would  also  be  useful.  Improving  infrastructure  maintenance,  multimodal  terminals  and 
their connection to the main networks, and telematic applications should remain a priority. Other 
priorities  include  rolling  out  the  European  Train  Control  System  on  the  entire  network, 
constructing a new line between Luxembourg and Bettembourg, and extending the Luxembourg 
station. Modernising the rolling stock is also important. 

There  is  also  a  need  for  longer-term  investment  in  the  electrification  of  transport.  New 
grants  and  extensions  to  existing  support  schemes  could  help  speed  up  the  development  of 
charging infrastructure for cars and buses, including private electric charging stations. Subsidies 
to  purchase  e-cars,  e-bikes  and  regular  bicycles  could  also  support  sustainable  mobility 
objectives.  

Environmental taxation 

Luxembourg’s  share  of  environmental  taxes  in  total  government  revenue  from  taxes  and 
social contributions remains the lowest in the EU, at 4.4 % in 2019. Taxes on energy represent 
90%  of  total  environmental  taxes  revenues.  The  low  taxation  on  combustion  fuels  in  transport 
attracts  cross-border  petrol  buyers  (Luxembourg  collects  61%  of  its  energy  tax  revenues  from 
non-residents) and makes it more difficult to achieve energy and climate goals.  

Luxembourg  is  taking  steps  to  increase  transport  fuel  taxation,  but  the  price  gap  with 
neighbouring countries remains significant. Luxembourg has recently introduced a carbon tax 
on  diesel,  petrol,  mazout,  and  gas  of  EUR  20  per  tonne  of  CO2  from  2021,  which  is  set  to 
increase  to  EUR  30  by  2023.  Tax  revenues  should  amount  to  more  than  EUR  140 million  in 
2021, and they are planned to be used to support households in need and to invest in the clean 
energy  transition.  Nevertheless,  the  fuel  tax  gap  with  neighbouring  countries  remains,  which 
encourages heavy-duty vehicles in transit, daily cross-border commuters and residents in border 
regions to refuel in Luxembourg, going against incentives to shift to more sustainable transport 
modes. 

Other green issues 

Luxembourg’s large financial sector can support  the green transition by taking a leading 
role in the growing sustainable finance market. Luxembourg’s Sustainable Finance Strategy, 
which  was  launched  in  February  2021,  aims  to  support  the  financial  sector  in  its  transition 
towards  sustainability,  and  to  further  position  Luxembourg  as  an  international  hub  for 
sustainable finance. Eco-innovation and circular economy policies can also support job creation 
and help diversify the economy. 

Digital dimension 

The  recovery  and  resilience  plan  should  contribute  to  the  digital  transition  and  at  least 
20% of the financial allocation needs to contribute to digital objectives. The measures in the 
plan should, inter alia, contribute to the digital transformation of the economic and social sectors 
(including  public  administration,  public  services,  and  the  justice  and  health  systems).  The 

14 

 
 
objective of the measures in the plan refers to improve, not only the competitiveness, but also the 
resilience, agility and security of companies and public actors, all while ensuring inclusiveness. 

Luxembourg is among the EU leaders in connectivity with high coverage of next-generation 
access networks, and the country needs to invest in digital skills and the digitalisation of the 
broader  economy.  The  implementation  of  5G  is  challenging,  because  of  strict  town  planning, 
and  environmental  and  territorial  requirements.  There  is  also  a  significant  shortage  of  ICT 
specialists,  and  hence  a  need  to  invest  in  digital  skills.  Deploying  digital  technologies  in  the 
broad  business  sector,  including  SMEs,  would  contribute  to  productivity  growth.  The  e-
Administration, with its provision of online public services, has a huge potential.  

Luxembourg ranks 10th in the European Commission’s Digital Economy and Society Index 
(DESI)  for  2020.  However,  digital  integration  in  the  business  sector  remains  below  the  EU 
average,  despite  the  high  level  of  digital  infrastructure  and  workers’  qualification  in 
Luxembourg,  which  are  among  the  highest  in  the  EU.  Luxembourg  introduced  several  digital 
measures to deal with the COVID-19 crisis, including for the health system, economic sectors, 
supply and demand for personal protective equipment, education and remote learning. 

Luxembourg scores well above the EU average on human capital, but it needs to address 
the shortage of ICT specialists to increase its technological edge. Irrespective of a high digital 
skill level among the broad population and a high number of ICT specialists, Luxembourg has a 
significant shortage of ICT specialists and needs to invest in digital skills. 67% of companies that 
recruited  or  tried  to  recruit  ICT  specialists  in  2020  reported  difficulties  in  filling  vacancies, 
significantly  above  the  EU  average  of  55%.  While  Luxembourg  has  one  of  the  most  enabling 
digital environments in the EU, with a commitment and accompanying efforts to deploy digital 
technologies,  and  a  well-developed  infrastructure,  digital  learning  would  yield  long-term 
economic  benefits.  Luxembourg  also  plans  to  boost  advanced  digital  skills  in  areas  such  as 
artificial  intelligence  (AI).  The  national  AI  strategy  to  boost  skills  and  competencies  and  to 
provide opportunities for life-long learning in the area should be updated to include details on the 
budget and an implementation plan. 

Luxembourg needs to develop a coherent and comprehensive approach that maximises the 
capacity  of  new  technologies  and  strategically  directs  all  available  resources  towards 
addressing  the  country’s  main  challenges.  Luxembourg  could  consider  further  developing 
high-performance  computing  (HPC)  capacity,  including  through  actions  on  HPC  scientific  & 
industrial  applications,  fostering  SME  uptake  of  HPC,  and  strengthening  the  national  HPC 
Competence  Centre  with  advanced  education  and  training  activities.  Luxembourg  should  also 
consider joining efforts with other Member States in HPC multi-country projects (for example on 
digital policies and health).  

Luxembourg  is  a  frontrunner  on  very  high-capacity  networks  connectivity  in  Europe 
(ranking third in DESI). However, it lags behind in 5 G deployment. An auction for 5 G use in 
July 2020 resulted in a significant share of the spectrum awarded in two out of the three pioneer 
bands. The adopted ‘Gigabit society by 2025’ strategy to deploy 5 G in all major cities and along 
important  transport  networks  is  unlikely  to  be  reached  without  significant  investment. 

15 

 
 
Nevertheless, strict urban planning, and environmental and territorial requirements hinder private 
investment  and  prevent  progress  in  creating  corridors  for  connected  and  automated  driving,  in 
logistics, and in smart cities and internet of things.  

Luxembourg  is  an  important  regional  hub  for  transport  paths,  with  two  TEN-T  corridors 
passing  by  (North  Sea-Mediterranean  and  Rhine-Alpine),  several  motorways  connecting  with 
neighbouring countries (France, Germany and Belgium), and high amounts of traffic - partly due 
to  cross-border  workers.  The  need  to  deploy  5 G  corridors  in  Luxembourg  is  therefore  high, 
particularly  to  ensure  business  continuity  of  5 G  connectivity  across  the  borders.  The  Horizon 
2020 5 G cross-border corridor project ‘5G CROCO’ was therefore launched in 2018 to conduct 
a  large-scale  trial  between  Lux-Metz  and  Saarbrucken.  A  5 G  cross-border  cooperation 
agreement was also signed between Luxembourg, France and Germany in 2017. 

Luxembourg’s performance in the digitalisation of businesses and use of internet services is 
relatively  weak.  The  country  needs  substantial  public  and  private  investment  to  foster 
innovation  and  the  digitalisation  of  businesses.  More  than  a  third  of  businesses  do  not  invest 
intensively in digital technologies and only 9% of Luxembourg’s SMEs sell online in 2020. The 
share  of  turnover  generated  by  e-commerce  remains  among  the  lowest  in  the  EU  (below  3%). 
Luxembourg  has  already  established  useful  programmes  to  support  the  digitalisation  of  SMEs, 
including  the  popular  ‘Fit4Digital’  programme,  and  has  launched  an  online  retail  window  for 
Luxembourg  retailers  and  customers.  Building  the  digital  capacities  and  skills  of  retailers,  in 
particular  SMEs,  remains  important.  The  further  adoption  of  enabling  technologies  to  address 
low  productivity  growth,  including  cloud,  big  data  and  robotics,  remains  a  challenge  and 
business R&D intensity in the ICT sector remains well below the EU average. The development 
and  broader  diffusion  of  digital  solutions  will  also  be  a  key  enabler  for  the  green  transition. 
Digitisation of businesses accelerated, e.g. with an e-commerce platform to allow local traders to 
sell online. 

The public sector is digitally mature and Luxembourg has made major progress on digital 
public  services.  Luxembourg  supported  digital  public  services  by  providing  pre-filled  online 
forms  and  using  big  data.  However,  despite  a  significant  increase,  the  use  of  digital  public 
services  is  low  (58%)  compared  with  the  EU  average  (67%).  The  e-Administration,  with  its 
provision  of  online  public  services,  has  enormous  potential.  In  its  new  strategy  ‘Gouvernance 
électronique  2021-2025’,  adopted  in  February  2021,  the  Luxembourg  government  commits  to 
providing a digital alternative for all public services. The digitalisation of the justice system is an 
important target for investment in Luxembourg. Despite progress made with digitalising justice, 
further  efforts  are  needed  in:  (i)  facilitating  the  initiation  of  proceedings  online;  (ii)  access  to 

16 

 
 
electronic files of closed or ongoing cases; and (iii) the electronic service of court documents to 
individuals and businesses16. 

Luxembourg’s  innovation  procurement  investments  are  still  significantly  below  the  EU 
average, in particular for digital solutions. To speed up the digital transformation of the public 
sector  and  boost  business  digital  integration,  there  is  a  need  to  further  strengthen  both  R&D 
procurements and procurements that ensure wide adoption of new ICT technologies. This can be 
achieved  by:  (i)  creating  a  national  action  plan  with  an  ambitious  target  for  innovation 
procurement; (ii) making innovation procurement a strategic priority in national ICT strategies; 
(iii) adopting the reform recommended in the new EU action plan on intellectual property rights 
(IPR)  to  leave  IPR  ownership  in  public  procurement  with  contractors;  and  (iv)  substantially 
increasing  investment  in  pre-commercial  procurement  and  public  procurement  of  innovative 
solutions in strategic technologies that are key for economic recovery, such as ICTs. 

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DESI LUXEMBOURG 2020 
 Relative performance by dimension 

DESI

1 Connectivity

2 Human
capital

3 Use of
internet
services

4 Integration
of digital
technology

5 Digital public
services

Luxembourg

EU

Note: EU aggregate corresponds to EU28, based on 2020 DESI report. 

16 For more information see the forthcoming 2021 Rule of Law report, Country Chapter on the rule of law situation 
in Luxembourg. See also Figures 41 to 47 2021 EU Justice Scoreboard. 

17 

 
 
 
 
 
                                                           
 
 
 
 
 
 
 
 
 
 
Box: Progress towards the Sustainable Development Goals 

Sustainable Development Goals and the four dimensions underpinning the Annual 
Sustainable Growth Strategy.

The  objectives  of  the  Sustainable  Development  Goals  are  integrated  in  the  European 
Semester  since  the  2020  cycle.  This  provides  a  strong  commitment  towards  sustainability  in 
coordination  of  economic  and  employment  policies  in  the  EU.  In  that  respect,  this  section 
outlines Luxembourg’s performance with respect to SDGs with particular relevance for the four 
dimensions underpinning the 2021 Annual Sustainable Growth Strategy and of relevance to the 
recovery  and resilience plans (green  transition,  fairness,  digital  transition  and productivity, and 
macroeconomic stability), indicating possible areas where investments and reforms in line with 
the objectives of the Facility could further accelerate the progress on the SDGs. 

Green Transition 

Luxembourg  has  made  progress  on  the  green  transition,  although  starting  from  a  low 
overall performance level. Per capita GHG emissions exceed the level of other Member States, 
with  66%  of  CO2  emissions  coming  from  road  transport  (according  to  STATEC),  of  which 
almost half are from the high number of cross-border workers commuting by car (not accounted 
for  in  the  population  count)  and  international  freight  traffic.  Nevertheless,  Luxembourg  has 
recorded  a  sharp  reduction  in  GHG  emissions  per  capita  in  recent  years.  This  could  partly  be 
linked  to  more  residents  opting  for  public  transport,  reflecting  the  extension  of  the  public 
transport system in Luxembourg City (SDGs 11, 13). The introduction of free public transport in 

18 

 
 
 
2020  and  the  introduction  of  a  carbon  tax  from  2021  might  not  be  sufficient  to  achieve  the 
country’s environmental commitments in the absence of an efficient alternative to cars for non-
resident  transportation.  To  this  end,  a  number  of  key  projects  are  underway  to  connect  or 
reinforce the main cross-border commuting axes, based on rail and multimodality. Luxembourg 
is  making  progress  on  water  pollution  caused  by  nitrates.  However,  nitrate  concentrations  in 
groundwater  and  the  trophic  state  of  surface  water  remain  problematic.  On  nature  protection, 
considerable  progress  has  been  made  in  adopting  conservation  measures  and  producing 
management plans for all sites. However, habitat fragmentation and biodiversity loss still require 
close attention (SDGs 14, 15). 

Luxembourg  is  highly  dependent  on  energy  imports.  The  reduction  of  GHG  emissions 
intensity of energy consumption has been lower than the EU average, with a small but increasing 
share  of  renewable  energy  (SDG  7).  Overall,  Luxembourg’s  citizens  are  among  the  less 
concerned by environmental action in the EU (SDG 12). 

Fairness 

Luxembourg  has  traditionally  outperformed  the  EU  average  in  nearly  all  the  indicators 
related to poverty, inequality and inclusive growth (SDGs 1, 8, 10). However, the trend has 
been generally worsening in recent years. This is reflected by a number of indicators, such as in-
work-at-risk of poverty or income inequality, while substantial public transfers are less effective 
in  reducing  market  income  differentials.  House  price  inflation  amplifies  inequalities,  with  the 
housing burden (mortgage and rental) significantly higher than the EU average for households in 
the lower income range. Education is among the main factors explaining differences in income. 
Luxembourg outperforms the EU average on the quality education indicator (SDG 4), although 
the achievement rate seems to be lower for pupils with foreign backgrounds. Indicators show that 
gender  inequality  at  work  is  very  low  and  shrinking,  except  the  occupation  of  senior 
management posts (SDG 5). The expected population growth and ageing in the long term might 
challenge the government’s capacity to maintain the high levels of social cohesion, equality and 
intergenerational fairness.  

Digital transition and productivity 

Luxembourg has considerable potential for developing new businesses in digital and other 
high-tech  fields,  such  as  the  satellite  industry.  The  level  of  digital  infrastructure  and  the 
proportion of ICT, science and technology workers in Luxembourg are among the highest in the 
EU  (SDG  9).  This  is  in  stark  contrast  with  digital  integration  in  the  business  sector,  which 
remains below the EU average. Except for a few selected activities, little support is provided by 
the public sector to invest in research and innovation, including agriculture (SDG 2). The legal 
framework does not seem to encourage research and innovation or entrepreneurship, as failure is 
heavily  penalised  by  corporate  insolvency  regulations.  Disconnection  between  private  sector 
R&D  and  the  public  research  system  is  not  conducive  to  knowledge  circulation  and  a  prompt 
transfer of research results into the real economy and may hamper the coordination of public and 
private  research  and  innovation  efforts,  in  particular  in  areas  supporting  the  green  transition. 
Luxembourg is among the most productive countries in the EU, even if productivity growth has 

19 

 
 
been  lagging  lately.  However,  price  competitiveness  is  being  eroded,  while  the  housing  and 
mobility bottlenecks might also lower the country’s attractiveness for firms and skilled workers, 
upon whom the economy highly depends. 

Macroeconomic stability 

Luxembourg is among the top EU countries on the quality of its institutions, including very 
high  perceived  judicial independence17  and political  stability (SDG 16). The  government  is 
committed  to  maintaining  low  levels  of  public  debt,  which  provide  a  highly  stable  outlook,  as 
assessed  by  credit  rating  agencies.  The  unemployment  rate  remains  relatively  low  and 
employment  has  even  increased  in  2020,  despite  the  impact  of  the  crisis.  Luxembourg  has 
significantly  reduced  the  time  taken  to  transpose  EU  regulations,  although  their  effective 
implementation lags slightly behind the EU average and a lack of transparency has been reported 
in  a  few  areas,  mainly  related  to  the  increasing  financial  information  requirements  introduced 
since the 2008 financial crisis and recently further reinforced. 

3.  OBJECTIVES, STRUCTURE AND GOVERNANCE OF THE PLAN 

3.1. Overall strategy of the plan  

Luxembourg’s  recovery  and  resilience  plan  complements  the  national  response  to  the 
COVID-19 crisis. Measures introduced by Luxembourg in its recovery and resilience plan (“the 
plan”) complement the national economic stimulus package introduced by Luxembourg in 2020 
in its Stabilisation, and Neistart Lëtzebuerg programmes in response to the pandemic. Out of the 
total  cost  of  EUR  183.1  million,  RRF  non-repayable  support  is  requested  to  cover  EUR  93.4 
million  (51%  of  the  total  costs),  while  the  national  budget  will  fund  46%,  and  other  EU 
instruments  are  expected  to  fund  the  remaining  3%  of  the  total  costs.  The  plan  contributes 
significantly to the green and digital transition, with respectively 60.9% and 31.6% of the plan’s 
total  allocation,  exceeding  the  respective  targets  laid  down  in  the  RRF  Regulation.  With  its 
skills, health, and housing components, the plan also exhibits a strong social dimension. All but 
one  (Scale-up)  of  the  seven  European  flagships  are  supported  by  the  RRF  (there  are  no 
investments directly related to the ‘Renovate’ flagship, but building renovation is mentioned in 
the envisaged reform of the housing sector). 

The 20 measures of the plan are structured in 8 components, grouped in three pillars. 

Pillar 1: Social cohesion and resilience 

17  Figures  48  and  50,  2021  EU  Justice  Scoreboard.  See  also  the  2020  Rule  of  Law  Report,  p.2  (SWD(2020)  315 
final). 

20 

 
 
 
                                                           
Under  pillar  1  (Social  cohesion  and  resilience),  the  component  Skilling,  reskilling  and 
upskilling (1A) aims  at  promoting, by two dedicated training programmes  emphasising digital 
skills,  the  skills  of  job  seekers  and  workers  placed  on  a  short-time  work  scheme.  A 
complementary  reform  will  deliver  a  training  action  plan  laying  down  paths  for  vocational 
trainings (“Skillsbridges”) designed to develop skills identified as the most needed for the future. 

The  component  Strengthening  the  resilience  of  the  health  system  (1B)  aims  at  delivering, 
through  a  consultative  reform  process  (“Gesondheetsdësch”),  a  work  programme  aligned  with 
the  strategic  objectives  of  a  more  resilient  health  sector,  and  an  implementation  roadmap.  A 
related reform seeks to address shortages of health professionals by reforming the regulation of 
medical  professions  and  job  profiles  in  healthcare,  and  thus  opening  the  sector  to  additional 
trained  staff.  Two  investment  projects  (single  digital  registry  of  healthcare  professionals, 
development  of  telemedicine)  seek  to  accelerate  the  digitalisation  of  the  sector,  thereby 
increasing its resilience and efficiency. 

The  component  Increasing  the  supply  of  affordable  and  sustainable  public  housing  (1C) 
seeks to respond to the challenge of the sustained, strong rise in housing prices. A recast of the 
scheme supporting housing policy  at municipal level  (Housing Pact  2.0)  focuses on increasing 
the  supply  of  affordable,  sustainable  public  housing,  streamlining  the  financial  incentives  for 
municipalities to create affordable dwellings by mobilising plots of land for construction and the 
renovation of the unused building stock. In addition, the ‘Neischmelz’ investment will fund the 
renewable  energy  generation  part  of  a  broader  housing  project  developed  on  a  revitalised 
brownfield site in Dudelange.  

Pillar 2: Green transition 

Under  pillar  2  (Green  transition),  the  component  Decarbonisation  of  transport  (2A)  aims  to 
support  a  rapid  development  of  electro-mobility  through  the  electrification  of  the  fleet  of 
contracting  authorities  and  public  transport,  and  through  an  aid  scheme  in  favour  of  charging 
infrastructure for electric vehicles installed by businesses. 

The component Environment and biodiversity protection (2B) includes the establishment of a 
legislative framework for a financial and advisory support to municipalities in protecting nature 
and preventing biodiversity loss.  

Pillar 3: Digitalisation, Innovation and Governance 

Under pillar 3 (Digitalisation, Innovation and Governance), the component  Promoting a data-
based  economy 
(3A)  aims  at  developing  ultra-secure,  quantum-technology  based 
communication  infrastructure  (LuxQCI  lab)  helping  public  and  private  sectors  enhance  the 
security  of  communication  of  sensitive  data.  The  national  infrastructure,  at  the  centre  of  a 
national  quantum-technology  ecosystem,  will  be  integrated  in  the  European  Quantum 
Communication Infrastructure project (EuroQCI). 

The  component  Modernisation  of  public  administration  (3B)  includes  investments  in  the 
digitalisation  of  public  administration  services,  including  online  solutions  for  citizens  and 

21 

 
 
businesses  to  carry  out  virtual  appointments  and  obtain  various  permits,  as  well  as  an  online 
national platform for conducting public consultations.  

The  component  Promoting  a  transparent  and  fair  economy  (3C)  includes  a  legislative 
measure prohibiting deductions for corporate income tax purposes of interests and royalties paid 
to  related  undertakings  established  in  jurisdictions  included  on  the  EU  list  of  non-cooperative 
jurisdictions for tax purposes. The component also  includes measures aimed at  fighting money 
laundering and terrorist financing, including measures designed to reinforce and consolidate the 
provisions applicable to professionals providing services to companies and trusts, and investment 
services,  as  well  as  to  better  understand  the  money  laundering  and  terrorist  financing  risks, 
including in vulnerable sectors.  

Table of components and associated costs. 

Component 

1A: Skilling, reskilling and upskilling 
1B: Strengthening the resilience of the health system 
1C:  Increasing  the  supply  of  affordable  and  sustainable  public 
housing 
2A: Decarbonisation of transport 
2B: Protection of environment and biodiversity 
3A: Promotion of a data-based economy 
3B: Modernisation of public administration  
3C: Promoting a transparent and fair economy 
Total 

Total cost 
(EUR 
million) 
10.4 
1.2 
51.5 

Of which 
RRF funding 
(EUR million) 
6.5 
1.2 
24 

40 
13.6 
30.2 
32.7 
3.6 
183.1 

30.5 
6 
10 
12.7 
2.5 
93.4 

3.2. Implementation aspects of the plan  

Consistency with other programmes 

Luxembourg presented its recovery and resilience plan in parallel  to its National  Reform 
Programme.  The  plan  should  therefore  be  seen  as  part  of  a  broader  implementation  of  the 
government's  priorities  and  in  line  with  the  National  Reform  Programme,  with  a  set  of 
investments and reforms that are consistent and complementary (see also section 4.2). 

While the partnership agreements and the programmes under the Cohesion Policy are still 
at  the  stage  of  negotiation,  most  of  the  plan  investments  appear  complementary  with  the 
interventions of the shared management funds planned for 2021-2027. As regards the ERDF and 
the  Just  Transition  Fund,  synergies  and  complementarities  could  be  potentially  expected  with 
investments  under  the  plan  for  almost  all  components  (1B,  1C,  2A,  2B,  3A,  3B).  The 
investments included in component 1A (Skilling, reskilling and upskilling) of the plan are also 
fully  consistent  with  the  specific  objectives  of  the  ESF+  (in  particular  its  objectives  (a) 

22 

 
 
 
 
‘improving access to employment of all jobseekers’ and (g) ‘promoting lifelong learning, notably 
flexible upskilling and reskilling opportunities for all’). 

Besides,  the  plan  explicitly  refers  to  Luxembourg’s  integrated  National  Energy  and 
Climate  Plan  (NECP),  which went  beyond the  agreed binding target  for  Luxembourg’s GHG 
emissions  reduction  under  the  Effort  Sharing  Regulation  by  setting  a  more  ambitious  national 
target of a 55% reduction by 2030 compared to 2005. Actions contained in the plan are expected 
to  contribute  to  these  emissions  reduction.  The  measures  in  Component  2A  on  the 
decarbonisation  of  transport  will  help  reduce  greenhouse  gas  emissions  in  that  sector,  by 
supporting the development of recharging infrastructure, while promoting the rapid development 
of electromobility in  the various vehicle categories, both  private and public. The Housing Pact 
2.0  in  Component  1C  will  in  part  contribute  to  increasing  the  energy  efficiency  of  buildings 
through  fostering  the  renovation  of  the  existing  building  stock.  The  ‘Neischmelz’  project  also 
promotes the generation of renewable energies. These elements will contribute to the objectives 
set in the NECP.  

Consistency with the challenges and priorities identified in the euro area recommendation 

The plan, and more broadly the economic and fiscal policies carried out by Luxembourg to 
support the economy and the recovery are consistent with the challenges and priorities identified 
in the euro area recommendation18 for 2021-2022.  

The  government  launched  two  programs  to  support  the  economy  in  2020  following  the 
outbreak  of  the  pandemic  crisis.  The  Commissions’  draft  budgetary  plan  assessment  already 
concluded that most of its measures have supported economic activity against the background of 
considerable uncertainty.  

In a medium-term perspective, Luxembourg is supporting job transitions, notably towards 
the  green  and  digital  economy  with  the  plan  dedicating  respectively  60.9%  and  31.6%  of  the 
plan’s  total  allocation  to  the  green  and  digital  transition.  Although  not  part  of  the  plan, 
Luxembourg is also making efforts to become a centre for sustainable finance in Europe. 

Luxembourg  is  moving  forward  in  the  fight  against  anti  money  laundering  and  terrorist 
financing  by  deepening  the  identification,  assessment  and  understanding  of  the  money 
laundering  and  terrorist  financing  risks  to  which  it  is  exposed,  strengthening  the  regime 
applicable  to  professionals  providing  services  to  companies  and  trusts  and  investment  services 
and by further developing the Luxembourg Business register.  

Besides, the plan includes a number of measures with the aim to strengthen the effectiveness and 
digitalisation of public administration. 

18  Pending  final  adoption  by  the  Council,  after  endorsement  by  the  European  Council.  The  text  agreed  by  the 
Eurogroup  on  16  December  2020  is  available  at:  https://data.consilium.europa.eu/doc/document/ST-14356-2020-
INIT/en/pdf  

23 

 
 
                                                           
However,  the  plan  does  not  adequately  address  features  of  the  tax  system  that  facilitate 
aggressive tax planning, in particular by means of outbound payments. 

The administrative organisation of the Member State  

The  administrative  system  for  the  implementation  of  the  plan  in  Luxembourg  is  clearly 
described in Part 3 of the plan. The ministry responsible for the coordination and management of 
the  plan  is  the  Ministry  of  Finance  (Directorate  of  Economic  and  Budgetary  Affairs).  The 
the 
Ministry  of  Finance  coordinates  all  ministries  and 
implementation of the plan. The implementation  of measures and the monitoring of milestones 
and targets are delegated to line ministries responsible for the implementation of the plan, which 
report to the Ministry of Finance.  

legal  bodies  responsible  for 

Gender equality and equal opportunities for all  

While  the  plan  does  not  contain  the  requested  stand-alone  section  describing  national 
challenges in the field of equality and explaining how reforms and investments included in 
the  plan  will  be  instrumental  to  address  them,  considerations  to  address  certain  equality 
challenges are present in four out of the eight components. Further measures fostering equal 
opportunities  and  gender  equality  (equal  access  to  education  and  life-long  learning,  parental 
leave,  targeted  support  to  vulnerable  job-seeker  groups,  promotion  of  women  in  politics  and 
businesses) are included in Luxembourg´s National Reform Programme. This needs to be seen in 
the  context  of  the  overall  high  level  of  gender  equality  and  social  protection  coverage  in 
Luxembourg’s labour market, with the gender employment gap below the EU average, and the 
gender pay gap among the lowest in the EU. However, Luxembourg is expected to monitor how 
the  investments  of  component  1A  (Skilling,  reskilling  and  upskilling)  contribute  to  gender 
equality and equal opportunities.  

The consultation process conducted for the preparation of the plan  

The Government conducted two rounds of presentations of the plan to, and consultations 
with, social partners and the Luxembourg Parliament. Specifically, the draft plan has been 
presented  to  the  parliamentary  Finance  and  Budget  Committee,  the  feedback  of  which  has 
informed  the  finalisation  of  the  plan.  Following  its  adoption  by  the  Government,  the  plan  has 
been presented to the parliamentary committees concerned, as well as to the plenary. Members of 
the Parliament  expressed their views  at  the subsequent  debate ahead of the formal submission. 
Social  partners  have  been  presented  the  draft  plan  as  part  of  the  annual  European  Semester 
process, and shared their views about the priorities to be reflected in the plan. In their opinion, 
the  plan  should  promote  social  inclusion,  the  creation  and  support  of  quality  jobs,  and  an 
acceleration of the twin transition, notably by helping workers having to adapt to the transition. 
Following the adoption by the Government of the plan, a new presentation to the social partners 
took place.  

Cross-border or multi-country projects  

Luxembourg  has  included  in  the  plan  a  cross-border  and  multi-country  project.  It  is 
presented in component 3: Promoting a data-driven economy, which encompasses a reform and 

24 

 
 
an investment with the objective to develop an ultra-secure communication infrastructure based 
on  quantum  technology.  The  first  step  of  this  measure  is  to  implement  the  necessary 
infrastructure  at  a  national  level.  The  second  step  consists  in  expanding  the  use  of  this 
technology with other countries that have also put in place the necessary infrastructure. The first 
cross-border pilot project is expected to occur in the first quarter of 2023 and discussions with 
partnering Member States have already started.  

The planned communication strategy 

Section  7  in  Part  III  of  the  plan  outlines  the  communication  strategy  envisaged  to  raise 
awareness of the public on the EU funding channelled via the RRF. Luxembourg published on 
the website of the Ministry of Finance the draft plan as approved by the Government Council on 
10 March 2021 and the full plan submitted to the Commission on 30 April. Luxembourg has also 
set up a dedicated section on the website of the Ministry of Finance to provide information on 
the reforms and investments presented in the plan as well as an overview of the projects financed 
under the Facility. 

State aid disclaimer  

State  aid  and  competition  rules  fully  apply  to  the  measures  funded  by  the  Recovery  and 
Resilience  Facility.  Union  funds  channelled  through  the  authorities  of  Member  States,  like  the 
RRF funds, become State resources and can constitute State aid if all the other criteria of Article 
107(1)  TFEU  are  met.  When  this  is  the  case  and  State  aid  is  present,  these  measures  must  be 
notified and approved by the Commission before Member States can grant the aid, unless those 
measures are covered by an existing aid  scheme or comply  with  the applicable conditions  of a 
block  exemption  regulation,  in  particular  the  General  Block  Exemption  Regulation  (GBER) 
declaring certain categories of aid compatible with the internal market in application of Articles 
107 and 108 TFEU19. When State aid is present and it requires notification, it is the duty of the 
Member  State  to  notify  State  aid  measures  to  the  Commission  before  granting  them,  in 
compliance  with  Article  108(3)  TFEU.  In  this  respect,  the  State  aid  analysis  carried  out  by 
Luxembourg in the recovery and resilience plan cannot be deemed a State aid notification. In as 
far  as  Luxembourg  considers  that  a  specific  measure  contained  in  the  recovery  and  resilience 
plan  entails  de  minimis  aid  or  aid  exempted  from  the  notification  requirement,  it  is  the 
responsibility of Luxembourg to ensure full compliance with the applicable rules. 

19 Commission Regulation 651/2014, OJ L 187, 26.6.2014, p. 1 

25 

 
 
 
                                                           
4.  SUMMARY OF THE ASSESSMENT OF THE PLAN 

4.1. Comprehensive  and  adequately  balanced  response  to  the  economic  and  social 

situation  

The plan contains several actions to improve social cohesion, sustain economic growth and 
progress in the green and digital transition. The small maximum financial contribution does 
not allow the plan to address all challenges, but the sets of measures presented within each of the 
eight  components  of  the  plan  appear  broadly  coherent.  Importantly,  the  plan  is  embedded  in  a 
more ambitious recovery plan mainly financed by the national budget. Luxembourg submitted its 
National  Reform  Programme  on  16  April  2021.  The  information  provided  in  the  National 
Reform  Programme  is  being  considered  and  jointly  assessed  in  this  Staff  Working  Document 
together  with  the  Recovery  and  Resilience  Plan.  The  green  components  are  also  broadly 
consistent with  the national  energy and  climate plan (NECP), while some projects  proposed in 
the  plan  are  also  part  of  broader  strategies,  such  as  one  dedicated  to  the  knowledge-based 
economy.  

Luxembourg  has  weathered  the  economic  effects  of  the  pandemic  relatively  well  mainly 
due to the positive contribution from the external sector, the structure of its economy with a 
large  financial  sector  more  resilient  in  the  pandemic,  and  the  unprecedented  global  policy 
response. Owing to a persistently prudent fiscal stance, the government has made good use of its 
relatively  wide  fiscal  space  to  articulate  a  decisive  policy  response,  which  has  been  crucial  to 
cushion the impact of the pandemic on the economy (real GDP fell by 1.3% in 2020, compared 
with 6.1% in the EU as a whole).  

Luxembourg’s plan covers reasonably the six pillars of the RRF scope in spite of its limited 
maximum  financial  contribution.  The  plan’s  structure  combining  RRF  funding  with  national 
funds  allows  a  wider  spread  of  measures.  Luxembourg’s  selection  of  measures  puts  a  strong 
emphasis  on  the  twin  transition,  with  a  60.9%  climate  contribution  and  a  31.6%  digital 
contribution, well above the RRF’s corresponding objectives of respectively 37% and 20%. The 
plan  also  features  a  relatively  strong  social  dimension  (skills  and  health)  and  shows  a  good 
overall balance between reforms and investments. 

Green transition 

The significant green dimension of the plan is due to three measures in components 1C, 2A 
and 2B, which contribute to addressing some important challenges faced by Luxembourg 
in  its  green  transition;  however,  the  limited  maximum  financial  contribution  under  the 
Facility  means  that  the  plan  had  to  focus  on  certain  specific  issues.  The  ‘Neischmelz’ 
investment  (component  1C)  will  support  the  deployment  of  renewable  energy  generation  and 
distribution on a specific site dedicated to affordable housing, in an innovative way. Alongside 
its primary objective to increase the supply of affordable housing, the reform of the Housing Pact 
will  also  contribute  to  sustainability  through  a  better  energy  efficiency  of  buildings,  including 
through renovation of the existing building stock. By funding the investment in charging points 
(component 2A), the Facility will contribute to the very ambitious target for electro-mobility of 
achieving 49% of electric cars in Luxembourg’s overall car fleet by 2030. Other challenges, such 

26 

 
 
as  investing  in  public  transport  infrastructure,  are  tackled  outside  the  plan.  Finally,  the 
‘Naturpakt’ measure (component 2B) can become an essential element in achieving the national 
objectives for nature protection and biodiversity conservation, by encouraging local authorities to 
implement measures chosen from a catalogue of specific policy-related measures. 

Digital transformation 

Component  3A  contains  a  reform  aimed  at  developing  and  implementing  an  ultra-secure 
communication infrastructure based on quantum technology. This project is in line with the 
“European  Quantum  Communication  Infrastructure”  initiative  (also  known  as  EuroQCI) 
launched  by  the  Commission  in  2019,  a  high-priority  project  for  the  Commission  and  the 
participating  Member  States.  At  a  later  stage,  the  project  involves  a  large-scale  satellite 
communication  element,  based  on  quantum  technology.  That  technology  is  still  under 
development and entails a certain level of risk but the project appears to be technically feasible. 
The reform aimed at developing a quantum technology ecosystem, should ensure that small and 
medium-sized enterprises and start-ups develop know-how in this sector, which is expected to be 
a key  element  of the next stages of the digital  transformation.  Component 3A also  includes an 
investment  consisting  in  developing  and  deploying  a  “national  test  laboratory”,  the  “LuxQCI 
Lab”,  aimed  at  acquiring  knowledge  and  experience  and  supporting  research  activities  in  the 
field  of  quantum  communication.  This  initiative  is  at  the  heart  of  the  EU-funded  OPENQKD 
(Open Quantum Key Distribution) pilot project aimed at installing quantum communication test 
infrastructures in several European countries, which will be linked to each other at a later stage. 
This  investment  is  in  line  with  the  digital  transformation  ambition  of  the  RRF  and  will  equip 
Luxembourg with tangible and intangible infrastructure in order to be ready to accommodate the 
sizeable impacts of quantum applications.  

Component  3B  of  the  plan  gathers  a  series  of  measures  aimed  at  the  modernisation  of  the 
public administration through digitalisation, in the context of the national Electronic Governance 
Strategy  and  responding  to  the  “Modernise”  European  flagship,  which  seeks  to  support  the 
digitalisation  of  public  administration  and  promote  “the  development  of  key  digital  public 
services”. The component will increase the effectiveness and efficiency of public administrations 
and will place the user at the centre of the strategy. Among the measures with higher potential is 
the expansion of services through MyGuichet.lu. The introduction of new online services makes 
it possible to expand the offer of digital public services for citizens and businesses. This offers 
administrative  simplification  both  for  end-users  (citizens  and  businesses)  and  for  the 
administration  responsible  for  the  procedures.  In  addition,  online  approaches  save  commuting 
time,  which  improves  productivity  and  they  are  available  at  all  times,  improving  accessibility. 
Digital  public  services  also  tend  to  enhance  transparency  through  more  comprehensive  and 
systematic information provided to users on the stage of progress in the procedure.  

Smart, sustainable and inclusive growth 

The aim of the eADEM project (Component 3B) is to upgrade ADEM’s IT resources and to 
develop  an  application  system  for  centralised  management,  adapted  to  the  missions  of  the 
Luxembourg  public  employment  service,  in  order  to  respond  to  changes  in  employment  and 
skills  expectations.  This  project  is  expected  to  reduce  bottlenecks  in  the  agency’s  day-to-day 

27 

 
 
running  of  jobseekers  orientation  and  employers  support,  and  will  expand  its  outreach  in 
implementing active labour market policies, for instance by developing on-line training courses. 
This  development  is  all  the  more  welcome  since  the  procedures  for  handling  jobseekers 
registrations in place at the onset of the pandemic, turned out not to be fully suitable for coping 
with  fast-growing  number  of  simultaneous  registrations  during  the  crisis.  In  addition,  the 
National  Platform  for  the  Management  of  Public  Inquiries  (Component  3B)  is  a  welcome 
simplification  of  the  administrative  procedure  for  consultation  of  official  notices  and  files 
submitted to a public inquiry. 

In  the  context  of  the  plan,  Luxembourg  proposes  some  measures  intended  to  reinforce 
actions against money laundering and terrorist financing (Component 3C).  

Social and territorial cohesion 

The lack of affordable housing is one of the main sources of inequality of Luxembourg. A 
high  degree  of  private  property  concentration  and  little  incentives  to  release  land  for 
development limit the ability of public authorities to tackle the chronic under-supply of housing. 
This, together with sustained strong demand, continues driving up prices. Against this backdrop, 
the reform of the Housing Pact (Component 1C) should strengthen the public sector’s capacity to 
increase the stock of public affordable and sustainable housing, especially for rental. The reform 
of  the  Housing  Pact,  which  is  currently  under  discussion  in  Parliament,  would  offer 
municipalities  the  support  and  incentives  to  sign  legally-binding  implementation  agreements 
with the government involving a joint obligation to develop land use plans in coordination with 
the central government. The reform is expected to increase access to land and housing. It offers 
the opportunity to curb in a meaningful way the trend of increases in housing prices, one of the 
main factors driving up household indebtedness. The Neischmelz project also pursues, indirectly, 
a social objective with more than half of the accommodation planned for affordable renting. 

Overall, territorial cohesion is being strengthened with new ways of coordination between both 
levels  of  government,  such  as  the  agreements  under  the  Housing  pact  and  the  Nature  Pact 
included in the plan. 

Health, and economic, social and institutional resilience 

Available  data  suggest  that  Luxembourg’s  health  system  is  comparatively  performant  in 
offering  accessible  and  good  quality  care.  However,  issues  emerged  when  neighbouring 
countries closed their borders at the outbreak of the COVID-19 crisis. This has highlighted the 
vulnerability of the health system. The plan contains measures expected to address the shortage 
of health professionals and skills in order to adapt them to needs and to strengthen the resilience 
and efficiency of the healthcare system, notably through the recasting of competences of defined 
health  professions  and  the  digitalisation  of  the  health  sector,  including  the  development  of 
telemedicine solution. 

Policies for the next generation 

The  plan  contains  several  measures  intended  to  foster  upskilling  and  reskilling  in 
Luxembourg.  The  “FutureSkills”  initiative  strengthens  the  partnership  between  national 

28 

 
 
employment agency (ADEM) and the Chamber of Commerce, which has developed a diversified 
training offer for jobseekers with the aim of assisting them with their integration or reintegration 
into the labour market. The Digital skills programme offers two days of training to all employees 
who benefited from the short-time work scheme between1 January and 31 March 2021.  

29 

 
 
Table 4.1. Coverage of the six pillars of the Facility by the components of Luxembourg’s plan 

Conclusion 

Taking  into  consideration  all  reforms  and  investments  envisaged  by  Luxembourg,  its  recovery 
and resilience plan is  expected to represent to a large extent a comprehensive, and  adequately 
balanced response to the economic and social situation, thereby contributing appropriately to 
all six pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and 
the financial allocation of Luxembourg into account. This would warrant a rating of A under the 
assessment criterion 2.1 in Annex V to the RRF Regulation. 

4.2. Link with country-specific recommendations and the European Semester  

Given the small RRF allocation for Luxembourg (0.15% of GDP in 2019), the investments in the 
plan  focus  on  a  selection  of  measures  which  contribute  to  addressing  a  significant  subset  of 
CSRs issued to Luxembourg in 2019 and 2020.  

Component  1A  Skilling,  reskilling  and  upskilling  contributes  to  addressing  some  of  the 
challenges identified in the CSRs, specifically: to mitigate the employment impact of the crisis, 
with  special  consideration for people in a difficult labour market  position (CSR 2 of 2020), to 
increase the employment rate of older workers by enhancing their employment opportunities and 
employability  (CSR  1  of  2019),  and  to  foster  investment  policy  on  stimulating  skills 
development  (CSR  3  of  2019).  The  component  combines  targeted  and  more  general  training 
measures for job seekers and workers on short-time work scheme, i.e. part of the population in a 
difficult labour market situation. Some of those training measures put emphasis on the sought-
after digital skills, thus contributing to the digitalisation and innovation, including in the business 
sector (CSR 3 of 2020), and to mitigating the skills mismatch on the labour market. A dedicated 
target for training of job seekers in the age group 45+ contributes to increasing the employability 
and  employment  opportunities  of  older  workers  (CSR  1  of  2019).  The  reform  designed  to 
strengthen  the  adult  learning  system  is  complementary  to  those  training  measures,  thus 
increasing the resilience, employability and mobility of workers in the context of the green and 
digital  transitions.  Those  short-term,  targeted  training  measures  and  the  development  of 
qualification avenues for the most promising job profiles are likely to progressively stimulate the 

30 

Green transitionDigital transitionSmart, sustainable & inclusive growthSocial and territorial cohesionHealth, and economic, social and institutional resiliencePolicies for the next generation1Skilling, reskilling and Upskilling●○●●2Strengthening the resilience of the health system●○●3Increasing the supply of affordable and sustainable public housing●●○●4Decarbonisation of transport●●○5Protection of environment and biodiversity●6Promoting a data-driven economy●●●7Modernisation of public administration ●●○●8Promoting a transparent and fair economy●Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar 
 
 
labour  force  supply  towards  sectors  where  the  skills  mismatch  is  greatest.  Given  the  small 
maximum  financial  contribution,  national  funds  and  ESF+  will  also  be  used  as  part  of  a 
comprehensive response to the above challenges, notably the employment situation of the most 
vulnerable jobseekers (CSR 2 of 2020).  

Component 1B Reinforcement of the resilience of the health system contributes to addressing 
some of the challenges identified in CSR 1 of 2020, specifically: to help improve the resilience 
of  the  health  system  by  ensuring  appropriate  availability  of  health  workers.  The  plan  also 
includes reforms to improve the governance and digitalisation of the health system.  

Reform 1 reinforces the governance of the health system and outlines the consultation process 
with stakeholders as well as the working programme method to address six pre-defined thematic 
challenges:  greater  complementarity  between  hospital  and  non-hospital  sectors;  more  patient-
centric services, prevention of shortage of medical and nursing staff; health prevention; recourse 
to new technologies in health; financing of the health system. The result of this process will also 
feed into the vision of the future-proof health system in the National Health Plan.  

Reform 2, consisting in the legislative recast of the responsibilities of health professionals, 
contributes to mitigating risks arising from  Luxembourg’s lack of health workers, and this will 
be achieved through better forecasting of needs, expansion of regulated professions and increase 
of  domestic  training  opportunities.  The  investment  in  a  single  digital  register  of  healthcare 
professionals  will  help  better  identify  shortages  of  professionals  and  skills  mismatches,  while 
mobilising workers in case of shocks. It will allow a better management and anticipation of the 
healthcare coverage and the healthcare professionals needed. The investment in telemedicine will 
improve the access and efficiency of the health system. The development of telemedicine is also 
a way to limit the pressure on health professionals. The component is impactful and relevant for 
the intended objectives to be achieved through specific and well-targeted measures.  

Component 1C Increasing the supply  of affordable and sustainable housing contributes to 
addressing  some  of  the  challenges  identified  in  the  CSRs,  namely  to  ‘focus  investment  on  the 
green  (…)  transition,  in  particular  on  sustainable  (…)  buildings  [and]  clean  and  efficient 
production  and  use  of  energy’  (CSR  3  2020),  and  to  ‘focus  investment  policy  on  increasing 
housing supply, including by increasing incentives  and lifting barriers  to build’ (CSR 3 2019). 
One  of  Luxembourg’s  greatest  challenges  is  the  lack  of  affordable  housing,  reflected  in  the 
steady  increase  in  housing  prices.  Against  that  backdrop,  the  legislative  recast  of  the  Housing 
Pact  aims  at  better  targeting  the  governmental  support  to  municipalities  to  create  affordable 
housing,  and  to  better  use  the  existing  residential  housing  and  land  potentially  available  for 
construction. The intention is to mobilise potentially available land and buildings to increase and 
improve  the  supply  of  affordable  housing  through  public  financial  incentives  to  municipalities 
for acquiring plots of land to build as well as unused buildings to renovate. The impact of the yet 
to be adopted reform can only become visible in the medium term, and will largely depend on 
the ability of the law to engage in municipalities, together with additional ongoing policy tools to 

31 

 
 
increase  the  public  sector’s  leverage  on  the  housing  market.  The  overall  ‘Neischmelz’  project 
contributes to the objective of increasing the supply of affordable and sustainable housing as well 
as clean and efficient production and use of energy, given that the generation units intended to 
supply power and heat to the new district, and possibly its neighbourhood, will exclusively rely 
on renewable energy sources.  

Component 2A Decarbonisation of transport contributes to addressing some of the challenges 
identified in  the CSR, namely to  ‘focus investment  on sustainable transport’ (CSR 3 2019 and 
CSR  3  2020)  to  contribute  to  the  decarbonisation  of  economy  and  enhance  air  quality.  By  the 
reform  ‘Electrification of the fleet  of contracting authorities and entities, and public transport’, 
Luxembourg goes beyond the requirements laid down by Directive 2019/1161 on the promotion 
of  clean  and  energy-efficient  road  transport  vehicles20  in  that  Luxembourg  imposes  the 
respective  minimum  procurement  targets  for  the  share  of  clean  vehicles  at  the  level  of  each 
contracting authority and entity, rather than at the national level. In addition, several contracting 
authorities  and  entities  have  committed  to  targets  going  beyond  the  minimum,  thereby 
contributing to an overall higher level of ambition. Development of electro-mobility is the goal 
of the other measure of the component, an aid scheme in favour of the rollout of electric charging 
points  which  seeks  to  close  the  funding  gap  on  a  yet  to  be  developed  market.  Apart  from 
addressing the respective CSRs, both measures contribute to Luxembourg’s 2030 GHG emission 
(-55%), and electro-mobility (49% share) targets, and to the implementation of positive structural 
changes.  

Component 2B Protection of environment and biodiversity contributes to addressing some of 
the challenges identified in the CSRs, namely to focus investment on the green transition (CSR 3 
of 2020). The draft law concerned, ‘Naturpakt’, encourages municipalities to invest in improving 
the  natural  environment  and  biodiversity  status  of  their  urban,  open,  aquatic,  and  forest  areas. 
The  performance-based  certification  subsidy  rewards  the  participating  municipalities  that  have 
achieved a scoring of at least 40% on the basis of actions listed in a dedicated catalogue aimed 
at, among others, creating, preserving, maintaining or restoring biotopes, habitats and degraded 
ecosystems.  

Component  3A  Promotion  of  data-based  economy  contributes  to  addressing  some  of  the 
challenges identified in the CSRs, namely to foster digitalisation and innovation (CSR 3 of 2019 
and 2020). Both measures of the component fall under the European Quantum Communication 
Infrastructure  initiative  (EuroQCI).  The  investment  measure  consists  in  developing  and 
deploying  an  experimental  platform  intended  for  use  by  scientists  for  research  into  quantum-

20 Directive (EU) 2019/1161 of the  European Parliament and of the Council of 20 June 2019 amending Directive 
2009/33/EC on the promotion of clean and energy-efficient road transport vehicles, OJ  L 188, 12.7.2019, p. 116-
130. 

32 

 
 
                                                           
based ultra-secure communications (Luxembourg Quantum Communication  Infrastructure  Lab, 
‘LuxQCI  Lab’).  That  research  infrastructure  will  be  used  to  acquire  the  know-how  required  to 
develop  and  operate  a  quantum-communication  infrastructure,  thereby  contributing  to  boosting 
Luxembourg’s  research  and  innovation  capabilities  in  this  field.  Another  deliverable  of  the 
investment  will  be  a  successful  demonstration  of  a  cross-border  quantum  key  distribution 
system.  Related  to  the  investment  is  the  reform  measure  consisting  in  supporting  a  new 
ecosystem  in  Luxembourg  built  on  the  quantum–based  communication  infrastructure.  Once 
successfully  tested  by  LuxQCI  Lab,  the  infrastructure  is  to  be  used  by  the  public  sector  and 
critical services, while its opening to the private sector can be expected after 2026. Deliverables 
of the reform consist in a successful testing, and the creation of technical conditions (including 
the  integration  of  the  terrestrial  and  space  segments)  in  view  of  a  broader  rollout  of  the 
technology. Given that mainly public entities will be involved in the testing phase, and that the 
infrastructure will be opened to commercial use possibly after 2026, Component 3A is expected 
to  contribute  to  addressing  CSR  3  of  2020,  in  that  it  calls  for  fostering  innovation  and 
digitalisation in the business sector, in the medium to long term.  

The same digitalisation and innovation challenge reflected in CSR 3 of 2019 is partly addressed 
by  Component  3B  Modernisation  of  public  administration.  The  latter  also  contributes  to 
partly  addressing  CSR  3  of  2020  that  highlights  innovation  and  digitalisation  of  the  business 
sector. This is achieved by the development of online administrative procedures and services to 
be  used  by  citizens  and  businesses,  thus  reducing  the  cost  of  compliance,  and  increasing  the 
efficiency  of  interactions  with  the  public  administration.  The  investment  in  the  electronic 
management of documents and case management, while serving public administration in the first 
phase,  will  benefit  citizens  and  businesses  after  its  completion  through  greater  efficiency  of 
document exchanges via public administration platform MyGuichet. 

Component 3C Promotion of a transparent and fair economy contributes to addressing some 
of  the  challenges  identified  in  the  CSRs,  specifically  to  ensure  effective  supervision  and 
enforcement  of  the  anti-money  laundering  (“AML”)  framework  as  regards  professionals 
providing  trust  and  company  services,  and  investment  services  (CSR  4  of  2020).  Reform  2 
comprises  relevant,  intertwined  measures  aimed  at  reinforcing  the  AML  framework  and  its 
enforcement, as well as at enhancing the identification of money-laundering (“ML”) and terrorist 
financing (“TF”) risks. The reform contributes significantly to enhanced effective supervision of 
professionals providing trust and company services, and investment services. This is achieved by 
a  combination  of  targeted,  legislative  and  non-legislative  measures  including,  among  others,  a 
better use of data registered on legal persons, greater understanding of risks allowing for targeted 
mitigation  measures,  as  well  as  clarification  of  applicable  sanctions.  Moreover,  the  regime 
applicable  to  trust  and  company  service  providers  will  be  reviewed  and  reinforced  through  a 
modification of the relevant legislation by September 2023. 

The plan does not adequately address the CSRs on addressing features of the tax system that 
facilitate aggressive tax planning, in particular by means of outbound payments (CSR 4 of 

33 

 
 
2019,  CSR  4  of  2020).  The  plan  includes,  as  part  of  component  3C,  a  legislative  measure 
prohibiting the deductibility of outbound royalties and interest payments to non-cooperative tax 
jurisdictions, which entered into force on 1 March 2021. However, this measure corresponds to 
the implementation of an agreement reached at EU Council level in December 2019, applying to 
all  Member  States,  irrespective  of  whether  or  not  they  have  been  given  a  recommendation  to 
address aggressive tax planning in the context of the European Semester. Moreover, this measure 
does not appear adequate to address the concern on outbound payments mentioned in the CSRs, 
as  its  geographical  scope  is  limited  to  non-cooperative  tax  jurisdictions.  As  such,  it  does  not 
target those jurisdictions where outbound payments are ‘at risk of escaping tax (…) by also not 
(being) subject  to  tax in the recipient  jurisdiction’, i.e. jurisdictions with zero or low corporate 
income  tax.  It  should  be  noted  that  the  plan  mentions,  as  a  complement  to  that  measure, 
Luxembourg’s  intention  to  carry  out  an  impact  assessment  of  the  above-mentioned  legislative 
measure,  ‘with  a  view  to  informing  the  discussion  on  an  extension  of  the  measure  to  third 
jurisdictions  other  than  those  included  in  the  EU  list  on  non-cooperative  tax  jurisdictions’. 
However, the plan does not contain any commitment to revise the corporate tax legislation based 
on the findings of that impact assessment. It thus offers no guarantee that Luxembourg will put 
in  place  an  adequate  legislative  framework  to  ensure  proper  taxation  of  intra-group  outbound 
payments in the form of royalties and interests, with a broader geographical scope including zero 
or  low  corporate  tax  rate  jurisdictions.  Finally,  the  component  indicates  that  Luxembourg  will 
continue  to  adopt  a  constructive  attitude  in  ongoing  and  upcoming  discussions  on  the 
modernisation  of  the  EU  and  international  fiscal  system  applicable  to  companies.  It  makes 
specific reference to Luxembourg’s active and constructive participation in ongoing negotiations 
as part of the OECD Inclusive Framework, and indicates that depending on the global agreement 
found, Luxembourg will implement the new rules to adapt its national fiscal framework; it also 
indicates  that  a  number  of  initiatives  announced  in  the  recent  Commission  Communication 
“Business  Taxation  for  the  21st  Century”  are  likely  to  help  remedy  any  problems  in  terms  of 
outgoing  dividends,  interest  and  royalties  payments,  and  that  Luxembourg  will  participate 
constructively  in  the  process  of  negotiating  these  initiatives  within  the  Council,  taking  into 
account the country-specific recommendation on aggressive tax planning. These indications are 
welcome,  but  do  not  have  an 
the  country-specific 
recommendation. 

immediate  effect  on  addressing 

The plan does not directly address the long-term sustainability of the pension system (CSR 1 
of 2019) or the negative effects of the early retirement schemes and the financial incentives for 
early  labour-market  exit  arising  from  the  benefits  system  which  negatively  affect  the 
employment rate of older workers (CSR 1 of 2019). However, the plan, in its component 1A 
Skilling, reskilling and upskilling, contains an investment with a target for older job seekers that 
contributes to increasing the employability of older workers (CSR 1 of 2019).  

Addressing CSR 3 of 2020, the Luxembourg authorities adopted numerous measures supporting 
the  liquidity  of  businesses,  notably  SMEs,  and  the  promotion  of  private  investments 

34 

 
 
fostering  the  economic  recovery  through  the  successive  national  stimulus  packages,  regularly 
updated and adjusted, as reflected in the Budgetary Plans of 2020 (amended) and 2021.  

Lastly,  whereas  the  plan  does  not  contain  measures  addressing  barriers  to  competition  in 
regulated  professional  business  services  (a  challenge  identified  in  CSR  2  of  2019),  two 
measures related to that topic, including a reform of the right of establishment, are mentioned in 
the National Reform Programme. 

To summarise, the following CSRs issued to Luxembourg in 2019 and 2020 are addressed 
by the plan to varying degrees: 

CSR  1  of  2019,  insofar  as  the  CSR  relates  to  enhancing  the  employability  of  older 

– 
workers; 

CSR 3 of 2019 (focus  economic policy related to investment  on fostering digitalisation 
– 
and innovation, stimulating skills development, improving sustainable transport, and increasing 
housing supply, including by increasing incentives and lifting barriers to build);  

CSR  1  of  2020  (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); 

CSR 2 of 2020 (mitigate the employment impact of the crisis, with special consideration 

– 
for people in a difficult labour market position); 

part of CSR 3 of 2020 (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,  fostering  innovation  and 
digitalisation in particular in the business sector); 

– 
part of CSR 4 of 2020 (ensure effective supervision and enforcement of the anti-money 
laundering  framework  as  regards  professionals  providing  trust  and  company  services,  and 
investment services;  

The following CSRs issued to Luxembourg in 2019 and 2020 are not addressed by the plan:  

– 
while the investments in skilling contribute to the employability of older workers (part of 
CSR  1  of  2019),  the  plan  does  not  directly  address  the  long-term  sustainability  of  the  pension 
system  (part  of  CSR  1  of  2019),  the  negative  effects  of  the  early  retirement  schemes  and  the 
financial  incentives  for  early  labour-market  exit  arising  from  the  benefits  system  which 
negatively affect the employment rate of older workers. 

CSR  2  of  2019  (reduce  barriers  to  competition  in  regulated  professional  business 

– 
services);  

35 

 
 
CSR 4 of 2019 and part of CSR 4 on 2020 on addressing features of the tax system that 
– 
facilitate  aggressive  tax  planning,  in  particular  by  means  of  outbound  payments  are  not 
adequately addressed; 

part  of  CSR  3  of  2020  (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), which has been addressed outside the plan. 

Conclusion 

Taking into consideration the reforms  and investments  envisaged by  Luxembourg, its recovery 
and resilience plan is expected to contribute to effectively addressing all or a significant subset 
of  challenges  identified  in  the  country-specific  recommendations,  or  challenges  in  other 
relevant documents officially adopted by the Commission under the European Semester, and the 
recovery and resilience plan represents an adequate response to the economic and social situation 
of Luxembourg. This would warrant a rating of A under the assessment criterion 2.2 in Annex V 
to the RRF Regulation. 

Table 4.2 Mapping of country challenges identified in 2019-20 country-specific recommendations 
and components of Luxembourg’s plan  

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2019.1, 2020.1  

○ 

Public finances 

2019.4, 2020.4 

Financial sector/Businesses 

2020.3, 2020.3 

● 

2020.4 

● 

36 

Country challenges 
(as identified in Section 
2) 

Long-term 
sustainability of public 
finances, in particular 
of the pension system 
Tackle aggressive tax 
planning 

Affordable housing 
supply / sustainable 
buildings 
Anti-money 
laundering/Counter 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
terrorism financing  
Business 
investment/Productivity 
growth 
Reduce barriers to 
competition 

Mitigate the 
employment impact of 
the crisis 
Increase the 
employment rate of 
older workers 
(employability) 
Skills development 
Skills shortages 

Resilience of the 
healthcare system 

Sustainable transport 
Clean and efficient 
production and use of 
energy  
Progressive 
decarbonisation of the 
economy 

○ 

○ 

○ 

2020.3 

2019.2 

2020.2 

2019.2.1, 
2020.2.3 

2019.3 
2020.1 

2020.1 

● 

● 

● 

● 
○ 

Employment 

● 
Health 
● 

2019.3, 2020.3 
2020.3 

2020.3 

Green dimension 

● 

● 

● 

● 

Digital dimension 
○ 

2019.3, 2020.3 

Foster innovation in the 
business sector 
Foster digitalisation in 
the business sector 
Key: “●” investments and reforms of the component significantly address the challenge; “○” the 
component partially addresses the challenge 

2019.3, 2020.3  

● 

○ 

● 

○ 

○ 

4.3. Growth  potential,  job  creation,  economic,  institutional  and  social  resilience, 
European  Pillar  of  Social  Rights,  mitigating  the  impact  of  the  crisis,  and  social 
territorial cohesion and convergence  

Fostering economic growth and jobs 

The reforms and investments included in the plan are a subset of the measures proposed by 
Luxembourg to address the impact of the crisis and promote a recovery consistent with the 
green  and  digital  transitions.  For  that  reason,  particular  attention  is  paid  to  the  effects  in  the 
medium  and  long  term  of  reforms  and  investments.  The  crisis  has  intensified  the  chronic 
shortage of skilled labour, a limiting factor for growth and investment, in particular in ICT and 
health.  At  the  same  time,  the  lack  of  adequate  skills  is  thought  to  be  a  major  cause  of  the 
difficulties  faced  among  people  born  outside  the  EU  to  find  sustainable  employment.  The 
skilling  component  (1A)  is  expected  to  provide  jobseekers  continuous  on-line  programmes 

37 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
designed  to  develop  digital  and  other  future-oriented  skills,  developed  by  the  reformed 
employment  agency  (ADEM)  to  increase  employment  opportunities.  This  component  gathers 
measures of the broader digital governance strategy, which also aims to foster digital integration 
in the private sector, notably by placing users experience at the centre.  

Investments  will  also  be  made  to  improve  the  matching  efficiency  and  labour  market 
transitions  through  vocational  training  (component  1A).  The  new  trainings  in  the  plan  are 
expected  both  to  increase  productivity  for  people  whose  skills  do  not  currently  match  labour 
market requirements, and to train more people for professions affected by a significant shortage 
of skilled workforce. In the face of the new challenges related to the green and digital transition, 
and  taking  into  account  the  high  reliance  of  the  Luxembourg  economy  on  an  adequate  and 
skilled labour supply, developing an efficient matching system is particularly welcome to ensure 
a smooth functioning of the labour market.  

Box 1: Stylised NGEU impact simulations with QUEST – LUXEMBOURG 

Model simulations conducted by the Commission using the QUEST model show that the economic 
impact of the NGEU in Luxembourg could lead to an increase of GDP of between 0.5% and 0.8% by 
20261. After 20 years, GDP could be 0.1% higher. Spill-overs account for a large part of such impact.  

According to these simulations, this would translate into up to 830 additional jobs. Cross border (GDP) 
spill-overs account for 0.7 pps in 2026, showing the value added of synchronised expenditure across 
Member States (line 2). Even in a scenario with a lower productivity of NGEU funds, it would still lead 
to a significant impact (line 3).2 

Table  1:  QUEST  simulation  results  (%  deviation  of  real  GDP  level  from  non-NGEU  case,  linear 
disbursement assumption over 6 years) 

Scenario 
Baseline 
   of which spill-overs 
Low productivity 

2021  2022  2023  2024  2025  2026  2027  2028  2029  2030  2040 

0.7 
0.7 
0.3 

0.9 
0.8 
0.4 

0.9 
0.8 
0.5 

0.9 
0.8 
0.5 

0.8 
0.8 
0.5 

0.8 
0.7 
0.5 

0.6 
0.6 
0.4 

0.4 
0.3 
0.3 

0.2 
0.2 
0.1 

0.1 
0.1 
0.1 

0.1 
0.0 
0.0 

This stylised scenario does not include the possible positive impact of structural reforms, which can 
be substantial. A model-based benchmarking exercise shows that undertaking structural reforms that 
would result in halving the gap vis-à-vis best performers in terms of indicators of structural reforms 
could raise Luxembourg GDP by 15% in 20 years’ time, more than the 11% found for the EU average3. 

Due to the differences in the assumptions and methodology, the results of this stylised assessment 
cannot be directly compared to the numbers reported in chapter 4 of Luxembourg’s plan. 

 _____________________________ 
1  RRF  amounts  to  roughly  90%  of  NGEU,  which  also  includes  ReactEU,  Horizon,  InvestEU,  JTF,  Rural 
Development and RescEU. For Luxembourg the RRF share is lower. 
2 Technically, the low productivity scenario considers a significantly reduced output elasticity of public capital. 
3  Varga,  J,  in  't  Veld  J.  (2014),  “The  potential  growth  impact  of  structural  reforms  in  the  EU:  a  benchmarking 
exercise ", European Economy Economic Papers no. 541.  

38 

 
 
 
 
http://ec.europa.eu/economy_finance/publications/economic_paper/2014/pdf/ecp541_en.pdf.  

In the medium to long term, the main supporting factors for economic growth included in 
the plan are the measures contributing to foster labour supply inflows, which might trigger a 
substantial economic growth momentum: an improved accessibility to housing (Component 1C), 
cleaner  and  more  efficient  transportation  systems  (with  contribution  from  Component  2A)  and 
improved  accessibility  and  quality  of  the  health  system  (Component  1B).  Reforms  and 
investments proposed in Component 1B also target more cost-effective healthcare delivery and 
hence contribute to improving the sustainability of public finances in the long run and improve 
the Health system resilience. 

Strengthening social cohesion 

The upskilling and reskilling component (1A) in the plan is important for social cohesion, and 
in particular, one of the investments includes a target for the participation of older workers and is 
thus also expected to contribute to greater social cohesion by investing in people that might more 
likely be lacking up-to-date digital skills. As a result, social cohesion is expected to be enhanced. 
The  whole  component  refers  to  one  of  the  headline  targets  of  the  European  Pillar  of  Social 
Rights  Action  Plan  for  the  EU  by  2030,  namely  that  at  least  60%  of  all  adults  should  be 
participating  in  training  every  year  by  2030.  In  the  same  line  the  strengthening  of  the  health 
system  (Component  1B)  is  expected  to  benefit  the  most  vulnerable  people.  The  Component 
contributes to the implementation of the European Pillar of Social Rights (principle 16 Access to 
healthcare) and social cohesion through addressing gaps in  access to healthcare in underserved 
areas.  

The modernisation of the public administration (3B) initially aims to strengthen institutional 
resilience by promoting  more effective  and efficient administrative services.  However, with  its 
broader  scope  to  engage  the  private  sector  in  the  digital  transition  and  digital  inclusion,  it  is 
expected to act as a powerful social cohesion driver. 

The reform of the Housing Pact (Component 1C) aims to help increase labour mobility and 
reduce  regional  disparities.  It  is  in  line  with  principle  19.a.  of  the  European  Pillar  of  Social 
Rights  which  states  “Access  to  social  housing  or  housing  assistance  of  good  quality  shall  be 
provided  for  those  in  need”.  Although  it  is  difficult  to  assess  ex-ante  the  effectiveness  of  the 
reform in terms of its impact on the actual access to affordable housing, the new Housing Pact 
2.0 will focus on increasing the supply of affordable and sustainable housing, and on mobilising 
existing land and residential potential.  

Against  the  backdrop  of  Luxembourg’s  limited  challenges  in  the  area  of  gender  equality 
and  equal  opportunities,  the  plan  contains  a  limited  number  of  measures  responding  to 
those  challenges.  The  component  3B  Modernisation  of  public  administration  approaches  the 
development  of  digital  services  in  line  with  the  principle  of  equal  access,  especially  for  older 
persons  and  persons  with  lower  digital  skills.  The  component  1A  Skilling,  reskilling  and 

39 

 
 
 
upskilling has a strong focus on supporting the participation of older people in the labour market. 
The  components  1B  Resilience  of  the  health  system  and  1A  Skilling,  reskilling  and  upskilling 
are designed to ensure equal access to the services concerned (i.e. e-learning courses as well as 
telemedicine  consultations)  thanks  to  digital  inclusion  measures  which  cater  for  the  needs  of 
persons  with  low  digital  skills,  older  persons,  or  persons  without  their  own  IT  equipment  or 
smartphone.  The  component  1C  Increasing  the  supply  of  affordable  and  sustainable  public 
housing  aims  at  easing  the  access  to  affordable  public  housing  by  a  targeted  reform  inciting 
municipalities to create affordable dwellings, mainly for rental. These measures are specifically 
targeting the low revenue households, which is expected to reduce socio-economic inequalities. 
Moreover,  the  plan  announces  the  finalisation  of  a  comprehensive  action  plan  for  digital 
inclusion still in 2021. 

Reducing vulnerability and increasing resilience 

Improving  institutional  coordination  and  diversifying  the  economy  will  be  key  factors 
conducive to resilience  towards external  shocks. These aspects  appear  to  be well covered in 
the plan. Notably, the Housing Pact (Component 1C), the Nature Pact (Component 2C), together 
with  the  instrumental  modernisation  of  the  administration  (Component  3B)  can  be  regarded  as 
contributing to resilience and reducing vulnerability.  

The  size  of  the  research  project  to  develop  a  communication  system  based  on  quantum 
technology (Component 3A) is sufficient to drive Luxembourg into a new area of specialisation 
to diversify economic structures in coordination with other countries. This measure is therefore 
expected to increase the cohesion of the economy. Greater economic and social cohesion is, in 
turn,  expected  to  increase  social  resilience.  In  the  long  term,  therefore,  the  measures  also 
strengthen  society's  ability  to  respond  to  economic  and  social  shocks  and  structural  changes, 
while  implementing  structural  measures  in  a  fair  and  inclusive  way.  The  plan  also  includes 
measures  to  increase  institutional  resilience  through  reforms  aimed  at  streamlining  the 
framework for combating money laundering and terrorist financing (Component 3C). By fighting 
against organised crime, it is expected to further contribute to resilience.  

Conclusion 

Taking  into  consideration  all  reforms  and  investments  envisaged  by  Luxembourg,  its  recovery 
and resilience plan is  expected to  have a high impact  on  strengthening the growth  potential, 
job  creation,  and  economic,  social  and  institutional  resilience  of  Luxembourg,  on 
contributing  to  the  implementation  of  the  European  Pillar  of  Social  Rights  and  the  Porto 
declaration adopted on 7 May 2021, including through the promotion of policies for youth, and 
on  mitigating  the  economic  and  social  impact  of  the  COVID-19  crisis,  thereby  enhancing  the 
economic, social and territorial cohesion and convergence within the Union. This would warrant 
a rating of A under the assessment criterion 2.3 of Annex V to the RRF Regulation. 

40 

 
 
 
Box: Employment and social challenges in light of the Social Scoreboard accompanying the 
European Pillar of Social Rights 

 The Social Scoreboard supporting the European Pillar of Social Rights points to some employment and social 
challenges  in  Luxembourg.  The  COVID-19  crisis  initially  negatively  affected  the  unemployment  rate  (20-64) 
which  rose  to  7.6%  in  June  2020  but  then  improved  to  reach  the  annual  value  of  6.8%  in  2020.  Following  the 
outbreak,  Luxembourg  took  unprecedented  measures  to  protect  employment  and  especially  people  in  a  difficult 
labour  market position. The employment rate  dropped by 0.7 pps in 2020 (same as the  EU average) and  stood at 
72.1%.  National  data  show  that  skilled  workers  with 
upper  secondary  or  higher  education  have  been  more 
affected  in  the  short  term  than  the  low-skilled.  Young 
people  under  the  age  of  30  have  been  disproportionally 
hit  (unemployment  rate  of  25.7%  in  Q4  2020  –  to  be 
nonetheless read against the small size of this population 
group).  Before  the  crisis,  non-EU  born  residents  were 
already  facing  a  high  unemployment  rate  (13.1%  in 
2019),  below  average  incomes  and  a  very  high  risk  of 
poverty or social exclusion (38% in 2019). 

The  employment  rate  in  2020  remains  below  the  EU 
average, particularly for older  workers, and possible 
skills  mismatches  and 
labour  shortages  deserve 
attention. Low-skilled people have a high inactivity rate, 
at  36.7%.  Also,  the  low-skilled  participate  less  in 
learning activities (5.7% against an average of 16.3% in 
2020).  Overall,  53%  of  jobseekers  have  only  a  lower 
secondary 
level  of  qualification.  Upskilling  and 
reskilling  of  workers  and  jobseekers  are  key  in  this 
context,  against  the  background  of  possible  skills 
mismatches.  

lowest  quarter  of 

The  impact  of  students’  origin  and  socioeconomic 
background  on  their  performance  is  one  of  the 
strongest  in  the  EU.  Almost  half  (47.7%)  of  pupils  in 
the 
index 
underachieve  in  reading,  in  contrast  to  just  10.2%  of 
those  in  the  top  quarter.  Recent  measures  aim  at 
diversifying the school offer to better reflect the diversity 
of the school population. 

the  socioeconomic 

In  this  context,  the  recovery  and  resilience  plan  of 
Luxembourg  addresses  a  series  of  employment 
challenges  relevant  for  the  implementation  of  the 
European Pillar of social rights. To enhance labour market access,  mitigate the employment impact of the crisis 
and stimulate  skills development,  the plan envisages  support for re/upskilling  measures  for  workers on  short-time 
work schemes (“Digital Skills” vouchers up to 500€ for online classes in 2021) and for job-seekers. The measures 
are part of the “FutureSkills” initiative which combines training with practical work experience in the public sector, 
and  studies  and  surveys  to  anticipate  required  skills  and  training  needs.  However,  this  investment  does  not  target 
low-skilled people. The plan also includes the development of a new skills strategy kick-started by the Skillsdesch 
initiative, agreed between social partners in July 2020, targetting both workers and job-seekers. Its main objectives 

41 

Critical situationTo watchWeak but improvingGood but to monitorOn averageBest performersUpdate of 29 April 2021. Members States are classified on the Social Scoreboard according to a statistical methodology agreed with the EMCO and SPC Committees. It looks jointly at levels and changes of the indicators in comparison with the respective EU averages and classifies Member States in seven categories. For methodological details, please consult the Joint Employment Report 2021; NEET: neither in employment nor in education and training; GDHI: gross disposable household income.Social protection and inclusionImpact of social transfers (other than pensions) on poverty reduction (2019)Children aged less than 3 years in formal childcare (2019)Self-reported unmet need for medical care (2019)Individuals' level of digital skills (2019)Better than averageDynamic labour markets and fair working conditionsEmployment rate (% population aged 20-64) (2020)Unemployment rate (% population aged 15-74) (2020)Long term unemployment (% population aged 15-74) (2020)GDHI per capita growth (2019)Net earnings of a full-time single worker earning AW (2019)Social Scoreboard for LUXEMBOURGEqual opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24) (2020)Youth NEET (% of total population aged 15-24) (2020)Gender employment gap (2020)Income quintile ratio (S80/S20) (2019)At risk of poverty or social exclusion (in %) (2019) 
 
are to analyse needs in skills, identify most promising vocational domains and to design and implement an action 
plan  for  future  trainings  (including  an  OECD  skills  study).  The  plan  also  includes  a  measure  to  strengthen  the 
capacity of the Public Employment Service through digitalisation.  

With more people likely to fall back on the basic safety nets due to the crisis, reforms on social protection and 
inclusion can provide much needed support, in synergy with ESF funding. The plan includes a number of social 
support measures, notably on social and affordable housing, and on the health care sector and workforce. The plan 
strengthens the system of municipal planning of housing investments (Housing Pact 2.0) and includes an investment 
to  improve  access  to  affordable  housing.  These  measures  are  expected  to  help  address  the  soaring  prices  in  the 
housing  sector  and  contribute  to  mitigate  their  impact  in  terms  of  inequalities  by  targeting  the  low-income 
households. The plan also includes a review of the system of medical professions, a single digital register of health 
professions and the strengthening of telemedicine provision.  

4.4. The principle of ‘do no significant harm’  

Luxembourg’s  recovery  and  resilience  plan  includes  a  systematic  assessment  of  each 
measure  against  the  principle  of  ‘do  no  significant  harm’  (DNSH),  for  each  of  the  six 
environmental  objectives  within  the  meaning  of  Article  17  of  the  Taxonomy  Regulation. 
Luxembourg’s  assessment  is  particularly  developed  for  measures  that  relate  to  the  green 
transition  (components  1C,  2A,  2B),  as  they  are  the  most  likely  to  have  an  impact  on  the  six 
environmental objectives.  

The  assessment  provided  allows  to  assess  that  all  measures  will  comply  with  the  DNSH 
principle. For some measures, the justification is based on the  fact that  the implementation of 
the existing EU and Luxembourg legislative framework allows to prevent any significant harm. 
This  is  the  case  for  instance  for  the  ‘Housing  Pact  2.0’,  or  for  the  support  scheme  for  electric 
vehicles  charging  stations.  Luxembourg  has  also  demonstrated  that  the  measure  to  ensure  that 
procuring entities buy a minimum share of zero- or low-emissions vehicles is compliant with the 
DNSH  principle,  by  providing  sufficient  information  on  the  criteria  applicable  to  purchased 
vehicles.  

For  the  natural  environment  and  biodiversity  support  scheme  ‘Naturpakt’,  Luxembourg 
communicated  to  the  Commission  a  draft  of  the  catalogue  of  possible  biodiversity 
protection  and  nature  restoration  measures,  which  clearly  supports  environment  protection 
actions, and does not raise any concerns as regards compliance with the DNSH principle.  

Conclusion 

Taking  into  consideration  the  assessment  of  all  the  measures  envisaged,  no  measure  for  the 
implementation  of  reforms  and  investments  projects  included  in  Luxembourg’s  recovery  and 
resilience  plan  is  expected  to  do  a  significant  harm  to  environmental  objectives  within  the 
meaning  of  Article  17  of  Regulation  (EU)  No  2020/852  (the  principle  of  ‘do  no  significant 
harm’). This would warrant a rating of A under the assessment criterion 2.4 of Annex V to the 
RRF Regulation. 

42 

 
 
 
  
4.5. Green transition 

Climate target  

Overall,  the  plan  is  considered  to  contribute  to  climate  objectives  for  60.9%  of 
Luxembourg’s  amount  requested  under  the  RRF  of  EUR  93.4  million,  and  as  such,  the 
climate target of 37% is met with a very significant margin.  

Three measures contribute to the climate target: 

  The ‘Neischmelz’ project in component 1C (EUR 24 million) focuses on renewable energy 
production  from  solar  and  geothermal  sources,  and  as  such  benefits  from  a  100%  climate 
coefficient  under  intervention  fields  029  (Solar  energy)  and  032  (Other  renewable  energy, 
including geothermal energy). 

  The  support  scheme  for  electric  vehicles  charging  points  in  component  2A  (EUR  30.5 
million)  is  tracked  with  a  100%  climate  contribution  under  intervention  field  077 
(Alternative fuels infrastructure). 

  The  ‘Naturpakt’  support  scheme  for  natural  environment  and  biodiversity  protection  in 
component  2B  (total  funding  request  of  EUR  6  million)  is  tracked  with  a  40%  climate 
contribution  under  intervention  field  050  (Nature  and  biodiversity  protection,  natural 
heritage and resources, green and blue infrastructure).  

Table 4.5.1: Components with climate contribution 

Component 

1C. Increasing the supply of affordable and sustainable 
public housing 
2A. Decarbonisation of transport 

2B. Protection of environment and biodiversity 

Total 

Contribution to the 
climate transition 
(EUR million) 
24 

% of total amount 
requested under the 
RRF 
25.7% 

30.5 

2.4 

56.9 

32.6% 

2.6% 

60.9% 

The plan applies correctly the methodology for climate tracking mentioned in Annex VI of 
the  Regulation,  by  identifying  intervention  fields,  and  corresponding  coefficients  for  the 
calculation  of  support  to  climate  change  objectives.  It  should  be  noted  that  the  plan  does  not 
propose any increased climate coefficients for any measure. 

Green transition 

Luxembourg’s recovery and resilience plan puts a significant focus on the green transition, 
with one of its three pillars fully dedicated to mobility and biodiversity measures. An additional 
measure,  the  ‘Neischmelz’  renewable  energy  project  (part  of  the  housing  component  1C),  also 

43 

 
 
 
 
contributes  to  the  green  transition.  The  proposed  actions  are  in  line  with  the  context  of  the 
European  Green  Deal.  In  the  context  of  a  small  maximum  financial  contribution,  the  plan 
manages  to  address  several  significant  challenges  Luxembourg  faces  as  regards  the  green 
transition (cf. Section 2.3.1). 

Climate and energy 

A  significant  part  of  the  investments  put  forward  in  the  plan  focuses  on  the  climate  and 
energy transition. They aim to contribute to Luxembourg’s 2030 targets and to its transition to 
climate neutrality by 2050. This is welcome as Luxembourg needs additional measures to reach 
its climate and energy objectives.  

Due  to  the  limited  maximum  financial  contribution,  proposed  measures  focus  on 
addressing certain challenges. The proposed measures of the plan follow up and are consistent 
with  the  orientations  outlined  in  Luxembourg’s  National  Energy  and  Climate  Plan  (NECP), 
although they focus prominently on certain challenges, in particular on sustainable mobility and 
renewable energy generation, in line with the ‘Recharge and refuel’ and ‘Power up’ flagships.  

By  contrast,  energy  renovation  of  buildings,  and  the  ‘Renovate’  flagship,  do  not  feature 
prominently in any investment measure. It is only mentioned, as a secondary objective, in the 
‘Housing  Pact  2.0’  reform,  which  aims  to  support  municipalities’  efforts  to  make  more 
affordable housing available, either by building new housing or renovating the existing building 
stock. Increasing renovation efforts will remain necessary21.  

The ‘Neischmelz’  measure (component 1C) aims to support  the deployment of renewable 
energy  generation  capacity  on  a  specific  site,  in  an  innovative  way.  This  is  useful  as 
Luxembourg  is  generally  experiencing  difficulties  to  increase  renewable  energy  generation 
domestically.  This  measure  aims  to  develop  solar  and  geothermal  energy  generation  as  part  of 
the  wider  ‘Neischmelz’  project  to  rehabilitate  an  old  industrial  site  and  develop  a  new, 
sustainable urban district. As such, it will focus only on one site, and will not in itself constitute a 
structural  response  to  the  challenges  Luxembourg  faces  on  renewable  energy  or  to  the 
achievement  of  Luxembourg’s  renewable  energy  targets.  However,  this  project  features  an 
innovative  dimension  with  the  expectation  to  produce  heat  through  a  deep  geothermal  energy 
power  plant,  which  could  be  a  very  valuable  precedent  for  other  projects  in  a  continental 
environment22.  

21 Zangheri,  P., Armani,  R., Kakoulaki,  G., Bavetta, M., Martirano, G., Pignatelli,  F. and Baranzelli, C., Building 
energy renovation for decarbonisation and Covid-19 recovery, EUR 30433 EN, Publications Office of the European 
Union, Luxembourg, 2020, ISBN 978-92-76-24766-1, doi:10.2760/08629, JRC122143. 
22 For an overview and assessment of sustainable districts in Europe see: Saheb, Y., Shnapp, S. and Paci, D., From 
nearly-zero  energy  buildings  to  net-zero  energy  districts,  EUR  29734  EN,  Publications  Office  of  the  European 
Union,  Luxembourg,  2019,  ISBN  978-92-76-02915-1,  doi:10.2760/693662,  JRC115188;  and  Shnapp,  S.,  Paci,  D. 
and  Bertoldi,  P.,  Enabling  Positive  Energy  Districts  across  Europe:  energy  efficiency  couples  renewable  energy, 

44 

 
 
                                                           
 
 
Sustainable mobility 

The  support  scheme  for  electric  vehicles  charging  points  (component  2A)  is  expected  to 
make  a  useful  contribution  to  the  shift  towards  sustainable  mobility,  by  complementing 
existing schemes and fostering the deployment of a network of charging stations to make electric 
mobility  more  attractive  for  Luxembourg’s  drivers.  This  is  welcome  to  support  investments  in 
the  electrification  of  transport.  Due  to  the  limited  maximum  financial  contribution,  this 
component  does  not  address  other  challenges  such  as  the  development  of  public  transport 
infrastructure,  which  is  however  underway  outside  of  the  context  of  the  plan.  As  transport  is 
Luxembourg’s main greenhouse gas emitting sector, efforts in sustainable mobility contribute to 
Luxembourg’s climate goals, particularly under the Effort Sharing Regulation. 

Environmental policies, including biodiversity 

The plan includes a whole component (component 2B) dedicated to nature and biodiversity 
protection. This component represents 6.4% of the total allocation under the Facility. It consists 
in a significant measure comprising elements on reforms  and of investments to support natural 
environment  and  biodiversity  protection  and  restoration,  the  ‘Naturpakt’.  This  measure 
constitutes  both  a  reform  to  set  up  a  new  reference  framework  for  municipalities’  actions  in 
favour of natural environment and biodiversity, and an investment to provide financial support to 
encourage municipalities’ efforts. It is based on a comprehensive catalogue of measures across 
different  types  of  habitats  and  environmental  challenges  (e.g.  water  protection,  climate 
adaptation),  and  also  comprises  communication  and  awareness  raising  actions.  It  provides  a 
sound,  integrated  approach  to  local  action  to  protect  and  restore  the  natural  environment  and 
biodiversity, inspired by the ‘Climate Pact’ recently put in place in Luxembourg. In the context 
of  the  limited  allocation  under  the  Facility,  the  plan  does  not,  however,  include  measures  on 
other environmental issues, such as eco-innovation, circular economy or sustainable finance. 

Just transition 

While  Luxembourg  is  not  facing  transition  challenges  in  the  same  manner  as  other 
countries,  it  should  be  noted  that  no  specific  action  is  foreseen  in  the  context  of  a  just 
transition regarding Luxembourg’s two main emitters – the cement plant and steel industry 
in Esch-sur-Alzette. However, as noted above, reforms in adult learning system and training will 
help employability and mobility of workers in the context of the green and digital transitions. 

Lasting impact  

Most  measures  described  in  the  plan  are  expected  to  have  a  lasting  impact  towards  the 
green  transition.  The  ‘Neischmelz’  renewable  energy  measure  is  part  of  a  wider  project  to 

EUR  30325  EN,  Publications  Office  of  the  European  Union,  Luxembourg,  2020,  ISBN  978-92-76-21043-6, 
doi:10.2760/452028, JRC121405. 

45 

 
 
                                                                                                                                                                                           
 
develop  a  sustainable  district,  which  will  overall  result  in  long-lasting  infrastructure 
development.  The  support  scheme  for  electric  vehicles  charging  points  will  also  improve 
Luxembourg’s  sustainable  mobility  infrastructure  for  the  coming  decades.  The  reference 
framework  and  support  scheme  for  the  natural  environment  and  biodiversity  ‘Naturpakt’  will 
also support municipalities’ efforts over the years to engage in nature conservation actions, and 
support  under  the  Facility  will  help  kick-start  the  programme.  The  ‘Naturpakt’  is  scheduled  to 
continue  all  the  way  to  2030,  and  it  will  contribute  to  anchoring  environment  protection  and 
biodiversity  conservation  in  municipalities’  practices  going  forward.  The  reforms  and 
investments  are  in  line  with  Luxembourg’s  National  Climate  and  Energy  Plan,  particularly 
regarding its  focus on sustainable mobility that  is  promoted through the Component 2A. More 
investments will be needed in the area of energy efficiency but the limited allocation under the 
Facility did  not  allow for all climate-related challenges to  be tackled extensively  as part of the 
plan. 

Conclusion 

Taking  into  consideration  the  assessment  of  all  the  measures  envisaged,  the  recovery  and 
resilience  plan  is  expected,  to  a  large  extent,  to  make  a  significant  contribution  to  the  green 
transition or to address the challenges resulting from it and ensures that at least 37% of its total 
allocation  contribute  to  the  climate  target.  This  would  warrant  a  rating  of  A  under  the 
assessment criterion 2.5 in Annex V to the RRF Regulation. 

4.6. Digital transition 

Overall,  the  plan  is  considered  to  contribute  to  digital  objectives  for  31.6%  of 
Luxembourg’s  amount  requested  under  the  RRF  of  EUR  93.4  million,  and  as  such,  the 
digital target of 20% is met with a significant margin.  

Luxembourg’s plan correctly follows the methodology for digital tagging set out in Annex 
VII  to  the  RRF  regulation,  by  identifying  intervention  fields,  and  corresponding 
coefficients  for  the  calculation  of  support  to  the  digital  objectives,  for  each  measure.  It 
should be noted that:  

 

In  the  different  measures  of  the  components  there  are  often  several  sub-measures.  For 
such  measures,  the  plan  indicates  an  intervention  field  for  each  sub-measure,  and  the 
digital tagging is computed at sub-measure level. 

  The choice of the intervention fields for the digital transition is overall well justified and 
it reflects the nature, objective and expected outcome of the investments included in the 
component. 

Overall, the choice of digital intervention fields in Luxembourg’s plan is well justified. As 
seen in Table 4.6.1, four components contribute to the digital transition, and account for 31.6% 
of the total allocation of the plan. These components are: 1A Skilling, reskilling and upskilling, 
1B  Strengthening  Health  System  Resilience,  3A  Promotion  of  a  data-driven  economy,  whose 
budget  fully  contributes  to  the  digital  target,  and  3B  Modernisation  of  Public  Administration 

46 

 
 
 
whose  budget  also  fully  contributes  to  the  digital  transition.  The  latest  two  are  the  main 
contributors to the digital transition.  

Table 4.6.1: Components with digital contribution 

Component 

1A.Skilling, reskilling and upskilling 
1B. Strengthening Health System Resilience 

3A. Promotion of a data-driven economy 

3B. Modernisation of public administration 

Total 

Digital transition 

Contribution to the 
digital transition 
(EUR million) 
5,60 
1,17 

% of total amount 
requested under the 
RRF 
6,0% 
1,2% 

10,00 

12,73 

29,50 

10,7% 

13,6% 

31,6% 

The implementation of the plan is expected to contribute to the digital transformation. The 
plan contains of a number of measures which contribute to the digital transition notably through 
the  digitalisation  of  public  administration  and  services  and  the  health  system,  which  aims  to 
improve  its  effectiveness  and  efficiency,  and  the  development  of  basic  and  advanced  digital 
skills.  Those  measures  will  promote  digitalisation  and  innovation  and  contribute  to  meeting 
demand on the labour market demands. These measures are expected to increase the overall use 
of  internet  services  and  hence  contribute  to  the  digital  transition  with  a  lasting  impact.  In  the 
context of the limited allocation under the Facility, the plan does not, however, include measures 
on other digital issues, such as the digitalisation of firms.  

The implementation of the measures is expected to contribute to addressing the challenges 
resulting  from  the  digital  transition.  In  particular,  Luxembourg  plans  to  develop  an  ultra-
secure  communication  infrastructure  based  on  quantum  technology  to  improve  the  security  of 
communication between different parties. This will contribute to personal data security, a major 
challenge  resulting  from  the  digital  transition.  Luxembourg  will  also  digitalise  the  Agency  for 
the Development of Employment (ADEM) to improve the efficiency of the public authorities in 
ensuring  satisfaction  of  labour  market  needs.  In  addition,  the  measures  contribute  to  improve 
communication’s  efficiency  between  government  and  businesses  and  citizens,  for  instance  by 
increasing  the  number  of  administrative  procedures  that  can  be  followed  remotely  by  private 
persons and businesses.  

The measures presented are also aligned with various European initiatives such as the EU 
Digital  Strategy,  the  EU  Skills  Agenda,  the  European  Education  Area  and  the  Digital 
Education Action Plan. The measures in the plan are also aligned with two out of six European 
flagships  included  in  the  Commission’s  Annual  Sustainable  Growth  Strategy.  These  are  the 

47 

 
 
 
flagship: Modernise, which concerns the digitalisation of the public administration, and Reskill-
upskill, which focuses on education and training to support digital skills. 

Conclusion  

Taking  into  consideration  the  assessment  of  all  the  measures  envisaged,  the  recovery  and 
resilience  plan  is  expected,  to  a  large  extent,  to  make  a  significant  contribution  to  the  digital 
transition and to address the challenges resulting from it and ensure that a minimum of 20% of 
its  total  allocation  contribute  to  support  digital  objectives.  This  would  warrant  a  rating  of  A 
under criterion 2.6 of Annex V to the RRF Regulation. 

4.7. Lasting impact of the plan  

The  impact  assessment  presented  in  the  plan  is  of  a  qualitative  nature,  as  a  quantitative 
impact assessment shows a negligible impact, given the limited size of Luxembourg’s total 
grant allocation. The plan states that the Government’s long-term vision does not focus solely 
on  macroeconomic  indicators  but  uses  the  plan  as  an  additional  lever  to  achieve  its  long-term 
objectives.  Instead  of  aiming  at  a  specific  level  or  growth  of  a  macroeconomic  variable  in  the 
short to medium term, it intends to pave the way for a sustainable, digital and resilient economy 
through  the  measures  contained  in  the  plan.  The  measures  presented  focus  on  innovative  and 
sustainable economic activities with significant exploitation potential. Through many innovative 
projects,  Luxembourg 
investment 
opportunities,  and  embarking  on  a  more  resilient  growth  path.  In  addition,  the  plan  aims  at 
providing an adequate response to the current health crisis, which is likely to aggravate existing 
inequalities. 

its  economic  activity,  creating  new 

is  diversifying 

Pillar 3 of the plan ‘Digitalisation, Innovation and Governance’ aims at strengthening the 
administration and institutions. The focus is on structural changes to strengthen the exchange 
of  confidential  information  within  the  public  and  private  sectors  (component  3A)  and  to  have 
high-quality  digital  public  services  (component  3B).  For  example  3A  can  help  laying 
groundwork for preventing cyber-attacks, recognised as a threat at European level under the EU 
Directive on the security of network and information systems. Promoting a transparent and fair 
economy (Component 3C) aims notably at strengthening the AML and TF risk identification and 
supervisory  framework.  Therefore  it  can  be  concluded  for  sub-criteria  7a  that  these  measures 
have a lasting structural change on the administration and relevant institutions, mainly related to 
the digital transition. 

All  three  pillars  of  the  plan  aim  at  structural  changes  in  policies.  The  “FutureSkills”  and 
Digital Skills (component 1A) initiatives aim to strengthen and diversify the professional skills 
of jobseekers and employees on short-time working schemes due to the COVID-19 crisis, with a 
particular focus on the development of digital skills. In a longer-term perspective, in Component 
1A  the  “Skillsdësch”  reform  intends  to  foster  lifelong  learning  and  improve  the  adequacy  of 
training to the needs of the labour market, which should make the labour market more resilient. 
The ‘Health’ component 1B contributes to the improvement of resilience and performance of the 

48 

 
 
 
health sector. It contains measures expected to address the shortage of health professionals and 
skills,  better  governance  and  digitisation  of  the  health  sector  (e.g.  the  development  of 
telemedicine).  In  Pillar  2,  the  decarbonisation  of  transport  (2A)  and  biodiversity  (2B) 
components  is  expected  to  contribute  positively  to  the  green  transition,  with  a  lasting  impact. 
Pillar  3  Promoting  a  transparent  and  fair  economy  (Component  3C)  aims  at  strengthening  the 
AML and TF legal supervisory framework. Therefore, for sub-criteria 7b it can be concluded that 
the reforms and investments are expected to bring a lasting structural change to relevant policies. 

In  the  long  term,  the  plan’s  effects  would  mainly  stem  from  the  measures  aimed  at 
bolstering the participation and skills of the labour force, the resilience of the health sector, 
and the green and digital transition. This is expected to have a positive impact on the labour 
force  participation  rate,  job  creation  and  long-term  labour  productivity.  The  investments  and 
reforms  are  also  expected  to  strengthen  the  resilience  of  the  healthcare  sector,  stimulate 
investments  and  job  creation  in  green  mobility  and  renewable  energy  and  strengthen  the 
efficiency and digital resilience in public institutions. In the design of the plan, the Government 
involved  the  Chamber  of  Deputies  and  the  civil  society  via  an  exchange  with  the  associations 
representing  the  social  partners.  For  some  measures,  the  involvement  of  stakeholders  in  the 
implementation  is  also  mentioned.  For  sub-criteria  7c  it  can  be  concluded  that  the 
implementation of the envisaged measures is expected to have a lasting impact. 

Conclusion 

Taking into consideration all reforms and investments envisaged by Luxembourg in its recovery 
and  resilience  plan,  their  implementation  is  expected,  to  a  large  extent,  to  bring  about  a 
structural change in the administration or in relevant institutions and in relevant policies 
and to have a lasting impact. This would warrant a rating of A under criterion 2.7 of Annex V 
to the RRF Regulation. 

4.8. Milestones, targets, monitoring and implementation  

Adequacy  of  the  structure  tasked  with  the  implementation  of  the  plan,  monitoring  of  progress 
and reporting 

The  administrative  system  for  the  implementation  of  the  plan  in  Luxembourg  is  clearly 
described in Part 3 of the plan. The ministry responsible for the coordination and management 
of  the  plan  is  the  Ministry  of  Finance  (Directorate  of  Economic  and  Budgetary  Affairs).  The 
Ministry  of  Finance  coordinates  all  ministries  and 
the 
implementation of the plan23. The implementation of measures and the monitoring of milestones 

legal  bodies  responsible  for 

23 Ministère des Finances, Ministère du Travail, de l’Emploi et de l’Économie sociale et solidaire, Ministère de la Santé, Agence 
eSanté, Ministère du Logement, Fonds du Logement, Ministère de la Mobilité et des Travaux Publics, Ministère de l’Énergie et 

49 

 
 
 
                                                           
 
 
and targets are delegated to line ministries responsible for the implementation of the plan, which 
report to the Ministry of Finance. The plan includes a description on how Luxembourg plans to 
ensure that the reforms and investments will be implemented in an effective manner.  It  clearly 
identifies  the  line  ministries  and  legal  authorities  that  are  responsible  for  implementing  the 
measures,  monitoring  progress  and  reporting  on  the  fulfilment  of  milestones  and  targets.  The 
Directorate  of  Economic  and  Budgetary  Affairs  within  the  Ministry  of  Finance  is  the 
coordinating  authority  responsible  for  overall  reporting.  The  plan  includes  a  description  of 
monitoring  arrangements.  More  specifically,  it  is  explained  in  the  plan  how  progress  towards 
milestones and targets will be measured. This explanation clarifies which indicators will be used 
for that purpose. It identifies which authority will be responsible for verifying that the milestones 
and targets are actually fulfilled. It clarifies how information on progress towards milestones and 
targets  will  be  gathered  at  the  level  of  the  plan  and  mentions  that  an  IT  system  is  under 
development  for  collecting  and  storing  all  relevant  data  related  to  the  implementation  of  the 
recovery and resilience plan - the achievement of milestones and targets, data on final recipients, 
contractors, subcontractors and beneficial owners. 

Milestones, targets and indicators 

The  overall  quality  of  milestones  and  targets  is  deemed  satisfactory.  The  description  of 
milestones  and  targets  in  each  component  of  the  plan  is  generally  clear  and  realistic.  In 
particular,  the  targets  and  milestones  are  clear  and  specific  enough  to  track  progress  in  the 
implementation  of  reforms  and  investments.  The  metrics  used  to  express  the  targets  are  well 
suited.  The  milestones  are  sufficiently  precise  to  measure  the  actual  implementation  of  the 
reforms and investments, in particular in that they relate to a large extent to objectively verifiable 
events  which correspond either to  the  full completion of the investments or reforms, or to  key 
steps  towards  such  full  completion.  The  milestones  and  targets  are  based  on  robust  data  and 
verification mechanisms. Overall, milestones and targets proposed in the plan are acceptable and 
realistic.  

Overall organisational arrangements 

The Directorate of Economic and Budgetary Affairs within the Ministry of Finance has the 
overall responsibility for the plan and acts as the single point of contact for the Commission 
as  the  "coordinator"  and  managing  department.  The  coordinator  is  responsible  for  the 
implementation  of  the  plan,  as  well  as  for  co-ordinating  with  other  relevant  authorities  in  the 
country, and monitoring progress with the fulfilment of the milestones and targets. As far as the 
administrative  capacity  is  concerned,  the  coordinator  at  the  Ministry  of  Finance  provided 
information on the staff members dedicated to the implementation of the plan and has foreseen 
the possibility to outsource certain tasks related to the management or control of the Facility to 
external service providers. Adequate supervision and quality control procedures are also in place 

de l’Aménagement du Territoire, Ministère de l’Économie, Ministère de l’Environnement, du Climat et du Développement 
Durable, Ministère d’État, Ministère de la Digitalisation, Ministère de la Justice.  

50 

 
 
                                                                                                                                                                                           
 
between the Ministry of Finance and the external service provider. The Ministry of Finance has 
been given a specific mandate as a management and coordination body for the implementation of 
the plan by decision of the Government Council on 26/4/2021. 

The plan also specifies that agreements are signed between the Ministry of Finance and the 
final  recipients  of  the  grants  allocated  to  implement  the  measures  of  the  plan.  Final 
recipients  will  be  asked  to  provide  the  necessary  information  on  the  implementation  of  the 
projects  and,  more  specifically,  on  the  indicators  defined  in  the  plan  to  achieve  the  milestones 
and targets. Milestones, targets and indicators are included in the agreements between these final 
recipients  and  the  Ministry  of  Finance.  The  representatives  of  the  managing  department  will 
check  the  existence  and  reliability  of  the  information  provided  during  on-site  visits.  The 
managing department ensures the quality of the information collection system (consistency and 
reliability  of  the  data  collected,  dynamics  of  information  feedback).  A  new  IT  system  for 
collecting  and  storing  all  relevant  data  related  to  the  implementation  of  the  recovery  and 
resilience plan - the achievement of milestones and targets, data on final recipients, contractors, 
subcontractors and beneficial owners – is under development. In accordance with Article 20(5) 
point (e) of Regulation (EU) 2021/241, Luxembourg should implement this measure in order to 
comply with Article 22 of that Regulation, by confirming the status of its implementation before 
the first payment request. A dedicated audit on the system shall be undertaken. The report should 
analyse  any  related  weaknesses  found  and  corrective  actions  taken  or  planned.  Accordingly,  a 
milestone has been introduced in order to ensure that the system is implemented before the first 
payment request is made.  

Conclusion 

The arrangements proposed by Luxembourg in its recovery and resilience plan are expected to be 
adequate  to  ensure  effective  monitoring  and  implementation  of  the  plan,  including  the 
envisaged  timetable,  milestones  and  targets,  and  the  related  indicators.  This  would  warrant  a 
rating of A under the assessment criterion 2.8 of Annex V to the RRF Regulation. 

4.9. Costing  

Reasonable costs 

Luxembourg  has  provided  an  explanation  and  has  submitted  documentation  on  the  cost 
estimates  submitted  for  each  investment  in  the  plan.  The  investments  can  be  broken  down 
into three categories according to the magnitude of their costs: three large projects (accounting 
each  for  more  than  EUR  10  million),  four  medium-sized  projects  (accounting  each  for  around 
EUR 5-6 million) and nine smaller investments (accounting each for less than EUR 2 million).  

The  cost  information  and  evidence  received  is  in  general  considered  to  be  complete  and 
understandable, however for some measures the evidence is not considered to be sufficient, and 
the underlying assumptions not fully justified. Luxembourg has provided information allowing to 
check the eligibility of costs. Information has been provided to assure that the cost fall within the 
required time frame, VAT is excluded from the cost estimates and no unjustified recurring costs 
were  included.  The  “Inspection  Générale  des  Finances”  (IGF)  has  verified,  based  on  the 

51 

 
 
 
 
explanatory documents provided by the line Ministries, all projects covered in the plan to ensure 
that the estimated costs are reasonable and plausible. However, no documentary evidence of this 
verification was submitted.  

Plausible costs  

Luxembourg  has  overall  provided  limited  historical  and  comparative  cost  information  to 
justify the plausibility of cost estimates. However, as  many projects  have already started, 
invoices,  tender  documents  and  project  plans  were  submitted  as  references.  For  several 
investments, invoices have been provided to demonstrate the total costs or to justify hourly rates 
of external consultants. For others project plans, an implemented law and an external study have 
been submitted. The Facility finances close to half of the total costs of the measures included in 
the plan, the rest coming mostly from the national budget and to a more limited extent from other 
EU funding sources. 

No double Union financing 

Luxembourg has indicated for each investment if it is eligible for EU funding programmes 
other than the RRF. For instance, under component ‘3A: Promoting a data-driven economy – 
Development  and  employment  of  testing  infrastructure  and  solutions  ultra-secure  connectivity’ 
Luxembourg indicated that it could also request funding from ‘Digital Europe Programme’ and 
‘Connecting  Europe  Facility  2’.  The  audit  and  control  system  is  designed  to  prevent  double 
funding.  Luxembourg  has  provided  sufficient  information  and  evidence  that  the  amount  of  the 
estimated  total  cost  of  the  plan  to  be  financed  under  the  Facility  is  not  covered  by  existing  or 
planned Union financing. 

There  are  two  investments  (3A  Development  and  deployment  of  testing  infrastructure  and 
solutions  ultra-secure  connectivity  and  3B-4  National  platform  for  the  management  of  public 
surveys) that  contain  recurring costs, however  Luxembourg has provided a  clear justification 
that  these  costs  are  required  for  the  projects  and  thus  contribute  to  the  long-lasting  impacts  of 
those  investments.  Those  limited  recurrent  costs  financed  by  the  plan  are  expected  to  have  an 
insignificant  budgetary  impact  once  the  plan  funding  ends.  Therefore,  their  funding  can  be 
sustainably  ensured  after  the  end  of  the  RRF  without  any  sizeable  negative  impact  on 
Luxembourg’s budget. This expenditure can therefore be supported by the RRF.  

Commensurate and cost-efficient costs 

The  size  of  the  investment  part  of  the  plan  for  Luxembourg  is  too  small  to  have  a  material 
quantitative  economic  impact,  however  including  the  reforms  in  the  plan,  the  social  and 
economic  impact  on  for  example  the  green  and  digital  transition,  affordable  housing  and  skill 
development can be considered commensurate with the limited total costs.  

Conclusion 

The justification provided by  Luxembourg on  the amount of the estimated total  costs of the 
recovery and resilience plan is to a medium extent reasonable and plausible, in line with the 
principle of cost-efficiency and is commensurate to the expected national economic and social 

52 

 
 
impact.  Luxembourg  provided  sufficient  information  and  evidence  that  the  amount  of  the 
estimated cost of the reforms and investments of the recovery and resilience plan to be financed 
under  the  Facility  will  not  be  covered  by  existing  or  planned  Union  financing.  This  would 
warrant a rating of B under the assessment criterion 2.9 of Annex V to the RRF Regulation. 

4.10. 

Controls and audit  

Robustness of internal control system and distribution of roles and responsibilities 

At  plan  level,  the  national  set-up  for  RRF  control  is  designed  in  a  very  straightforward 
way.  The  Directorate  for  Economic  and  Budgetary  Affairs  within  the  Ministry  of  Finance  has 
overall responsibility for the plan and acts as a single point of contact for the Commission. This 
service  (managing department) is  also  responsible for drawing-up  of the  payment  requests and 
management  declarations  and  it  will  coordinate,  monitor  the  implementation  of  the  RRF  and 
collect the data on the indicators from the final recipients. The management verifications will be 
done  by  the  management  department.  However,  the  audits  will  be  carried  out  by  the  audit 
authority  for  the  RRF  in  LU,  i.e.  “l’Inspection  Générale  des  Finances”.  IGF  is  also  the  audit 
authority for the European Structural and Investment Funds and it is independent of the service 
gestionnaire, therefore ensuring segregation of functions.  

The audit authority (i.e. IGF) describes in general the audit approach which will be applied 
to the RRF: annual system audit (with a view to assess the functioning of the management and 
control systems, including the system in place for the reporting of the milestones and targets and 
also  the  internal  control  system  for  preventing,  detecting  and  correcting  fraud,  conflict  of 
interest, corruption and double funding) and annual audits of operations (based on an adequate 
sample).  

Concerning  the  prevention,  detection  and  correction  of  serious  irregularities,  the  plan 
describes the national organizational structure covering the tasks to be performed based on a risk 
mapping, responsibilities and how they should prevent, detect and correct fraud, corruption and 
conflicts of interest wherever they occur. The use of the single data-mining and risk scoring tool 
to  be  provided  by  the  Commission  is  also  confirmed.  The  results  of  the  controls  will  be 
summarised in a report drawn up during the control of expenditure. However, not all procedures 
for the protection of the financial interests of the Union described in the plan are already in place 
(e.g. a procedure for reporting suspected fraud or a criminal offence to the competent authorities 
is to be developed and others described in Part III, Chapter 4 on Implementation, subchapter x 
and Chapter 6 on Audit  and Controls  sub-chapter xi  of the Plan). The  Luxembourg authorities 
have committed to develop and complete them by the fourth quarter of 2021. In accordance with 
Article  20(5)  point  (e)  of  Regulation  (EU)  2021/241,  Luxembourg  should  implement  these 
procedures  in  order  to  comply  with  Article  22  of  that  Regulation,  by  confirming  the  status  of 
their  implementation  before  the  first  payment  request.  Accordingly,  a  milestone  has  been 
introduced in order to provide assurance on the protection of the financial interest of the Union 
before the first payment request is made.  

53 

 
 
 
Adequacy of control systems and other relevant arrangements 

The control system put in place seems appropriate. Apart from the follow-up check relating 
in particular to the milestones and targets set out in the plan and included in an agreement with 
the  final  recipient  (giving  rise  to  a  specific  report  accompanying  the  main  control  report  and 
detailed in the paragraphs on monitoring), the managing department checks the invoice statement 
obtained  with  the  request  for  reimbursement  and  ensures  that  it  is  approved  and  signed  by  an 
authorised  person  of  the  final  recipient.  Each  project  must  undergo  one  or  more  on-the-spot 
checks  by  the  managing  department.  The  managing  department  aims  to  obtain  reasonable 
assurance as to the legality and regularity of the underlying transactions, taking into account the 
level  of  risk  it  has  identified  for  the  type  of  final  recipients  and  transactions  concerned. 
Therefore, the checks will be performed at all components level.  

At plan level,  monitoring the implementation  of the plan should be achieved through (i) a 
systematic  and  continuous  process  of  production  and  collection  of  quantitative  and  qualitative 
data  on  the  implementation  of  the  plan,  and  (ii)  by  analysing  the  data  by  the  managing 
department and within the consultation committee as part of a partnership-based approach. On-
the-spot checks and visits carried out by the managing department during the management and 
monitoring of projects shall be subject to the drawing up of a visit report describing the progress 
of  the  project.  These  checks  make  it  possible  to  verify  that  the  operation  is  in  line  with  the 
objectives and strategy set out in the plan. 

The managing department is responsible for aggregating all the information relating to the 
indicators  for  which  it  also  carries  out  a  consistency  check  and,  more  generally,  a  quality 
control. The managing department will also be responsible for communicating and making use of 
these  monitoring  data,  both  in  the  coordination  committees  and  in  the  annual  implementation 
report.  The  managing  department  carries  out  checks  on  the  administrative,  financial,  technical 
and physical aspects of the operations, in all stages of the implementation of a project, namely 
when  the  financing  sheet  is  being  examined,  when  projects  are  managed  and  monitored,  when 
applying for reimbursement of grants to final recipients, when grants are paid to final recipients. 
In  addition,  specific  measures  are  implemented  to  check  compliance  with  the  rules  relating  to 
public procurement, to prevent corruption and to protect financial interests.  

The  data  relating  to  final  recipients  will  be  collected  as  soon  as  they  enter  the  operation, 
which is done either by entering data directly by the managing department or by importing data 
via  an  import  Excel  file.  The  data  collected  in  this  way  will  then  have  to  be  entered  either 
directly into the information system or imported via files. Luxembourg has confirmed that it will 
collect  and  store  data  in  accordance  with  the  requirements  of  Article  22(2)  point  (d)  of  the 
Regulation. In addition, it has also confirmed that all information and documents will be kept in 
accordance with Article 132 of the Financial Regulation.  

Any request for payment shall be accompanied by a management declaration certifying that 
the  funds  have  been  used  for  their  intended  purpose,  that  the  information  provided  with  the 
request for payment is complete, accurate and reliable and that the control systems put in place 
provide  the  necessary  assurance  that  the  funds  have  been  managed  in  accordance  with  all 

54 

 
 
 
applicable  rules,  in  particular  the  rules  aimed  at  avoiding  conflicts  of  interest  and  preventing 
fraud, corruption and double funding under the Facility and other Union programmes, including 
a summary of audits.  

As  Luxembourg’s  authorities  will  submit  one  payment  claim  per  year,  the  audit  authority 
will carry out annual audits of operations and an annual system audit, resulting in an annual audit 
report  detailing  the  controls  carried  out  and  setting  out  the  results  of  the  audits  and  controls 
during the reporting period. It will provide an opinion, based on the controls and audits that have 
been  carried  out  under  its  responsibility,  on  whether  the  management  and  control  system  is 
functioning  effectively,  so  as  to  provide  reasonable  assurance  that  the  milestones  and  targets 
declared  in  the  payment  requests  submitted  to  the  Commission  are  correct  and  therefore  a 
reasonable assurance that the underlying transactions are legal and regular.  

Adequacy of arrangements to avoid double EU funding 

Double  funding  is  being  tackled  from  the  programing  phase  of  each  component. 
Luxembourg has put in place a robust system to deal with the risk of double-funding. First, at the 
level of final recipient, who must indicate the sources and amounts of any other funding, outside 
the Facility support, received or applied for in the same financial year for the same action or for 
other  actions.  The  same  final  recipient  must  also  certify,  as  part  of  his  application  for 
reimbursement, that the absence of such a risk has been verified and documented. The managing 
department must therefore ensure that the final recipient’s accounting and financial information 
system allows accurate monitoring of the sources of funding and, where appropriate, of each of 
the programmes in which the final recipient participates. In addition, coordination meetings with 
the  representatives  involved  in  the  implementation  of  shared  management  funds  are  also 
foreseen, sharing information in relation to financing of different projects.  

The  managing  department  will  also  perform  documentary  checks.  The  department  must 
therefore  ensure  that  the  final  recipient’s  accounting  and  financial  information  system  allows 
accurate monitoring of the sources of funding and, where appropriate, of each of the programmes 
in which the final recipient participates. Additionally, IGF will also perform audits which should 
ensure that the funds have been managed in accordance with all applicable rules and that systems 
are able to prevent, detect and correct cases double funding. 

Legal empowerment and administrative capacity of control function 

Luxembourg  indicates  that  the  approval  of  the  plan will  constitute  the  legal  mandate  for 
the Ministry of Finance (and therefore for the managing department within the Ministry). 
With regard to the legal  mandate of the audit authority, the plan refers to the law of 10  March 
1969 establishing the “Inspection Générale des Finances”. As regards the administrative capacity 
of the managing department, it will consist of 6 staff members, which according to Luxembourg 
is sufficient to perform the task allocated to it. Luxembourg has also foreseen the possibility to 
outsource  certain  tasks  related  to  the  management  or  control  of  the  RRF  to  external  service 
providers.  Adequate  supervision  and  quality  control  procedures,  independence  and  absence  of 
conflicts of interest are part of the contractual arrangements with the external service providers. 
The  audit  authority  will  outsource  all  the  audit  work  (both  system  audits  and  audits  of 

55 

 
 
operations).  Adequate  provisions,  including  supervision  and  quality  control  procedures,  are 
included  in  the  contract  with  the  external  service  provider  to  ensure  that  the  external  service 
provider disposes of adequate administrative capacity to perform the audit work. The technical 
expertise of existing staff is confirmed. 

Conclusion 

The  arrangements  proposed  by  Luxembourg  in  the  plan  to  prevent,  detect  and  correct 
corruption,  fraud  and  conflicts  of  interest  when  using  the  funds  provided  under  the 
Facility, including the arrangements aimed to avoid double funding from the Facility and other 
Union  programmes,  are  assessed  to  be  adequate.  This  would  warrant  a  rating  of  A  under  the 
assessment criterion 2.10 of Annex V to the RRF Regulation. 

4.11. 

Coherence  

Considering the size of the RRF allocation, the plan contains an adequate balance between 
investments  and  reforms.  The  eight  components  contain  investments,  and  six  components 
include accompanying reforms targeting the same objectives. For example, the three measures in 
component 1 Skilling, reskilling and upskilling are mutually supportive, and the proposed reform 
should allow for an adaptation, if necessary, of the investments in skills. Another example is in 
component  1C  Increasing  the  supply  of  affordable  and  sustainable  public  housing,  where  the 
investment  in  the  ‘Neischmelz’  project  for  the  supply  of  electricity  and  heat  from  renewable 
energy sources to new dwellings in Dudelange are accompanied by a reform to create a concept 
to support housing policy at municipal level (as part of Housing Pact 2.0). In 2A Decarbonisation 
of  transport  the  investment  for  the  implementation  of  a  support  scheme  for  electric  charging 
points is combined with a reform defining the minimum percentages of low- and zero-emission 
vehicles, including electric vehicles, in public procurement. The description of the measures also 
includes an explanation of their coherence with national and European policies. For sub-criteria 
11a the assessment concludes that the plan includes coherence within components with measures 
that contribute to reinforcing the effects of one another. 

All components in the plan are complementary, i.e. they do not have contradictory aims or 
possible negative effects on one another. There are several components that complement each 
other.  For  example,  component  1C  (Increasing  the  supply  of  affordable  and  sustainable  public 
housing) may also contribute to a reduction in traffic as many cross-border workers experience 
difficulties  in  finding  affordable housing in  Luxembourg. That  component’s sole investment  is 
geared towards renewable energy to  be supplied  to  sustainable housing in order to  support the 
green transition. Another example is component 1A “FutureSkills” where the social impact also 
supports  the  fiscal  challenge  from  the  pension  system  by  a  measure  aiming  to  increase  the 
participation rate of older workers. The assessment concludes that for sub-criteria 11b the plan is 
also  coherent  between  components.  In  order  to  promote  wider  coherence  across  instruments, 
notably with the European cohesion policy funds, a balanced territorial allocation of resources is 
encouraged. 

56 

 
 
 
 
Conclusion 

Taking  into  consideration  the  qualitative  assessment  of  all  components  of  Luxembourg’s 
recovery and resilience plan, their individual weight (importance, relevance, financial allocation) 
and their interactions, the plan contains measures for the implementation of reforms and public 
investments which, to a high extent, represent coherent actions. This would warrant a rating of 
A under the assessment criterion 2.11 of Annex V to the RRF Regulation. 

57 

 
 
 
 
 
Annex – Climate and Digital Tagging Table  

Int. Field = intervention field 
Coeff. = Coefficient for the calculation of support to climate change objectives and to digital 
transition, on the basis of Annex VI and Annex VII of Regulation (EU) 2021/241 

Measure/ 
Sub-
Measure 
ID 
1A.I1 
1A.I2 

1B.I1 

1B.I2 

1C.I1 

2A.I1 

2B.I1 

3A.I1 

3B.I1 

3B.I2 

3B.I3 

3B.I4 

3B.I5 

3B.I6 

Measure/Sub-Measure Name 

“Futureskills” 
Digital Skills 
Single digital register of health 
professions 
Telemedicine solution for remote 
medical follow-up of patients 
‘Neischmelz’ project in 
Dudelange 
Support scheme for charging 
points 
‘Naturpakt’ 
Development and deployment of 
testing infrastructure and ultra-
secure connectivity solutions 
Electronic Document 
Management and Case 
Management 
Development of MyGuichet — 
Project 1/3: Virtual appointment 
Development of MyGuichet — 
Project 2/3: Various C2G and 
B2G approaches 
Development of MyGuichet — 
Project 3/3: APP Mobile 
MyGuichet.lu 
‘eADEM’ 
National platform for the 
management of public surveys 

Climate 

Digital 

Int. 
Field 

Coeff. 
% 

Int. 
Field 

Coeff. 
% 

016 
108 

095 

40% 
100% 

100% 

095 

100% 

021 

100% 

011 

100% 

011 

100% 

011 

100% 

011 

100% 

011 

011 

100% 

100% 

Budget 
(EUR 
m) 

1,5 
5 

0,34 

0,83 

24 

032 

100% 

077 

050 

100% 

40% 

30,5 

6 

10 

5,04 

0,17 

0,36 

0,33 

6,41 

0,41 

58