Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Luxembourg
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Luxembourg, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, fiscal policy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 616 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Luxembourg {SWD(2024) 600 final} - {SWD(2024) 616 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Luxembourg 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities, it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  
The  REPowerEU  Regulation3,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 

the  Recovery  and  Resilience  Facility 

OJ L 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17),  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj.  
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery  and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1), ELI: http://data.europa.eu/eli/reg/2023/435/oj. 

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(3) 

(4) 

(5) 

security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables, energy storage capacities and energy efficiency.  

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’4, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member States.  On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report5.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified. 

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey6, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024 Alert Mechanism Report, in which it did not identify Luxembourg as 
one of the Member States that may be affected or may be at risk of being affected by 
imbalances, and for which an in-depth review would be needed. The Commission also 
adopted a recommendation for a Council recommendation on the economic policy of 
the euro area, which the Council adopted on 12 April 2024, as well as the proposal for 
the 2024 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council  adopted  on  11  March  2024.  On  18  April  2024,  the  Commission  adopted  an 
opinion on the 2024 Draft Budgetary Plan of Luxembourg. 

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States7.  The  objectives  of  the 
new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
through gradual  fiscal consolidation  as  well as  reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 

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COM(2023) 168 final.  
COM(2024) 77 final. 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI: http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 
29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 

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depending on the regular length of the national legislature. The net expenditure8 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) No 2024/1263, including the requirements to put or 
keep  general  government  debt  on  a  plausibly  downward  path  by  the  end  of  the 
adjustment period at the latest, or for it to remain at prudent levels below 60% of GDP, 
and to bring and/or maintain the government deficit below the 3% of GDP reference 
value  over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of 
reforms and investments in accordance with the criteria set out in Regulation (EU) No 
2024/1263, the adjustment period may be extended by 3 years at most. For the purpose 
of supporting the preparation of those plans, on [21 June] 2024, the Commission is set 
to  provide  Member  States  with  guidance  on  the  content  of  the  plans  and  the 
subsequent  annual  progress  reports  that  they  will  need  to  submit  and,  in  accordance 
with  Article  5  of  Regulation  (EU)  No  2024/1263,  will  transmit  to  them  technical 
guidance  on  the  fiscal  adjustments  (reference  trajectories  and  technical  information, 
where  applicable).  Member  States  should  submit  their  medium-term  fiscal-structural 
plans by 20 September 2024, unless the Member State and the Commission agree to 
extend the deadline by a reasonable period of time. Member States should ensure the 
involvement  of  their  national  parliaments,  and  the  consultation  of  independent  fiscal 
institutions, of social partners and other national stakeholders, as appropriate. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241. 

On 30 April 2021, Luxembourg submitted its national recovery and resilience plan to 
the  Commission,  in  accordance  with  Article  18(1)  of  Regulation  (EU)  2021/241. 
Pursuant  to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the 
relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, 
in  accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  13 
July 2021, the Council adopted its Decision on the approval of the assessment of the 
recovery  and  resilience  plan  for  Luxembourg9,  which  was  amended  on  17  January 
2023  following  Article  18(2)  of  Regulation  (EU)  2021/241  to  update  the  maximum 
financial contribution for non-repayable financial support10. The release of instalments 
is  conditional  on  a  decision  by  the  Commission,  taken  in  accordance  with  Article 
24(5)  of  Regulation  (EU)  2021/241,  that  Luxembourg  has  satisfactorily  fulfilled  the 

Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024,  ELI: http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 
Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Luxembourg (10155/2021). 
Council  Implementing  Decision  of  17  January 2023  amending  the  Implementing  Decision  of  13  July 
2021  on  the  approval  of  the  assessment  of  the  recovery  and  resilience  plan  for  Luxembourg 
(16022/2022). 

(6) 

(7) 

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(8) 

(9) 

relevant  milestones  and  targets  set  out  in  the  Council  Implementing  Decision. 
Satisfactory fulfilment presupposes that the achievement of preceding milestones and 
targets has not been reversed. 

On 26 April 2024, Luxembourg submitted its 2024 National Reform Programme and, 
on 25 April 2024, its 2024 Stability and Growth Programme, in line with Article 4(1) 
of  Regulation  (EC)  No  1466/97.  In  accordance  with  Article  27  of  Regulation  (EU) 
2021/241, the 2024 National Reform Programme also reflects Luxembourg’s biannual 
reporting on the progress made in achieving its recovery and resilience plan.  
The  Commission  published  the  2024  country  report  for  Luxembourg11  on  19  June 
2024.  It  assessed  Luxembourg’s  progress  in  addressing  the  relevant  country-specific 
recommendations  adopted by the Council  between 2019  and  2023 and  took stock of 
Luxembourg’s  implementation  of  the  recovery  and  resilience  plan.  Based  on  this 
analysis, the country report identified gaps with respect to those challenges that are not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new  and  emerging  challenges.  It  also  assessed  Luxembourg’s  progress  on 
implementing the European Pillar of Social Rights and on achieving the EU headline 
targets on employment, skills and poverty reduction, as well as progress in achieving 
the UN’s Sustainable Development Goals.  

(10)  Based  on  data  validated  by  Eurostat12  Luxembourg’s  general  government  deficit 
increased from 0.3% of GDP in 2022 to 1.3% in 2023, while the general government 
debt rose from 24.7% of GDP at the end of 2022 to 25.7% at the end of 2023.  

(11)  On 12 July 2022, the Council recommended that Luxembourg take action to ensure in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an overall neutral policy stance13 taking into account continued temporary and targeted 
support to households and firms most vulnerable to energy price hikes and to people 
fleeing  Ukraine.  Luxembourg  was  recommended  to  stand  ready  to  adjust  current 
spending  to  the  evolving  situation.  Luxembourg  was  also  recommended  to  expand 
public investment for the green and digital transitions, and for energy security taking 
into account the REPowerEU initiative, including by making use of the Recovery and 
Resilience  Facility  and  other  Union  funds.  In  2023,  according  to  the  Commission 
estimates, the fiscal stance14 was expansionary, by 3.2% of GDP, in a context of high 
inflation.  The  growth  in  nationally  financed  primary  current  expenditure  (net  of 
discretionary revenue measures) in 2023 provided an expansionary contribution to the 
fiscal stance of 2.7% of GDP. The expansionary growth in nationally financed primary 
current expenditure (net of discretionary revenue measures) was driven by untargeted 
emergency  energy  measures,  permanent  increases  in  public  sector  wages  and  social 
benefits,  higher  government  investment  and  the  one  percentage  point  reduction  in 

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SWD(2024) 616 final. 
Eurostat-Euro Indicators, 22.4.2024 
Based  on  the  Commission  Spring  2024  Forecast,  the  medium-term  potential  output  growth  of 
Luxembourg in 2023, which is used to measure the fiscal stance, is estimated at 5.6% in nominal terms 
based on the 10-year average real potential growth rate and the 2023 GDP deflator. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds.  

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VAT  rates  in  2023.  In  sum,  the  growth  of  nationally  financed  primary  current 
expenditure  in  2023  was  not  in  line  with  the  Council  recommendation.  Expenditure 
financed by Recovery and Resilience Facility grants and other EU funds amounted to 
0.1% of GDP in 2023. Nationally financed investment amounted to 4.7% of GDP in 
2023,  representing  an  increase  of  0.5  percentage  points  as  compared  to  2022. 
Luxembourg  financed  additional  investment  through  the  Recovery  and  Resilience 
Facility  and  other  EU  funds.  Luxembourg  financed  public  investment  for  the  green 
and digital transitions, such as public transport, energy efficiency and green mobility 
as  well  as  digital  public  services,  which  are  partly  funded  by  the  Recovery  and 
Resilience Facility and other EU funds. 

(12)  The key projections in the 2024 Stability Programme can be summarised as follows. 
The  macroeconomic  scenario  underpinning  the  budgetary  projections  foresees  real 
GDP  growth  at  2.0%  in  2024  and  3.0%  in  2025,  while  it  projects  HICP  inflation  at 
1.9%  in  2024  and  3.2%  in  2025.  The  general  government  deficit  is  expected  to 
increase to 1.2% of GDP in 2024 and remain stable at 1.2% of GDP in 2025, while the 
general government debt-to-GDP ratio is set to increase to 26.5% by the end of 2024 
and 26.9% by the end of 2025. After 2025, the general government deficit is projected 
to decrease gradually to 0.9% of GDP in 2026, and remain stable in 2027. Therefore, 
the  general  government  balance  is  planned  to  remain  below  the  3%  of  GDP  deficit 
reference  value  over  the  programme  horizon.  In  turn,  after  2025,  the  general 
government debt-to-GDP ratio is projected to increase gradually to 27.3% in 2026, and 
remain stable in 2027. 

(13)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  1.4%  in  2024 
and 2.3% in 2025, and HICP inflation to stand at 2.3% in 2024 and 2.0% in 2025. 

(14)  The Commission Spring 2024 Forecast projects a government deficit of 1.7% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to increase to 27.1% 
by the end of 2024. The increase of the deficit ratio in 2024 mainly reflects continued 
high  spending  on  compensation  of  public  employees  and  social  benefits  due  to  the 
automatic  indexation  and  lower  revenues  mainly  due  to  discretionary  measures  e.g. 
adjusting  upward  the  personal  income  tax  brackets  and  compensating  companies  for 
the  third  2023  wage  index  tranche  via  a  reduction  of  the  employers  social 
contributions  in  2024.  Based  on  the  Commission’s  estimates,  the  fiscal  stance  is 
projected to be expansionary by 0.4% of GDP in 2024. 

(15)  Expenditure amounting to 0.1% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
less than 0.1% of GDP in 2023, according to the Commission Spring  2024 Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general government balance and debt of Luxembourg.   

(16)  On 14 July 2023, the Council recommended15 that Luxembourg ensure a prudent fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 

15 

Council  Recommendation of 14  July  2023 on  the  2023  National  Reform  Programme  of Luxembourg 
and delivering a Council opinion on the 2023 Stability Programme of Luxembourg, OJ C 312, 1.9.2023, 
p. 145. 

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primary  expenditure16  in  2024  to  not  more  than  4.8%.  When  executing  their  2023 
budgets  and  preparing  their  Draft  Budgetary  Plans  for  2024,  Member  States  were 
invited  to  take  into  account  that  the  Commission  would  propose  to  the  Council  the 
opening  of  deficit-based  excessive  deficit  procedures  based  on  the  outturn  data  for 
2023.  According  to  the  Commission  Spring  2024  Forecast,  Luxembourg’s  net 
nationally  financed  primary  expenditure  is  projected  to  increase  by  6.8%  in  2024, 
which  is  above  the  recommended  maximum  growth  rate.  This  excess  spending  over 
the  recommended  maximum  growth  rate  in  net  nationally  financed  primary 
expenditure  corresponds  to  0.9%  of  GDP  in  2024.  This  risks  being  not  in  line  with 
what was recommended by the Council. 

(17)  Moreover, the Council recommended that Luxembourg take action to wind down the 
emergency energy support measures in  force, using the related savings  to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Luxembourg  should  ensure  that  these  were  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost17 of energy support measures is estimated at 0.9% of GDP in 2023 and projected 
at 0.5% in 2024, and 0.3% in 2025. In particular, the measures to limit the increase in 
gas  and  electricity  prices  and  the  subsidies  to  contain  heating  costs are  assumed  to 
remain in force in 2024 and 202518.  

(18) 

If the related savings were used to reduce the government deficit, as recommended by 
the  Council,  these  projections  would  imply  a  fiscal  adjustment  of  0.5%  of  GDP  in 
2024, whereas net nationally financed primary expenditure19 provides an expansionary 
contribution to the fiscal stance of 0.3% of GDP in that year. The emergency energy 
support measures are not projected to be wound down as soon as possible in 2023 and 
2024.  This  risks  being  not  in  line  with  what  was  recommended  by  the  Council. 
Moreover,  the  related  savings  are  not  projected  to  be  fully  used  to  reduce  the 
government deficit. This also risks being not in line with the Council recommendation. 
The  budgetary  cost  of  emergency  energy  support  measures  targeted  at  protecting 
vulnerable households and firms is estimated at 0.1% of GDP in 2024 (0.4% in 2023), 
of  which  less  than  0.1%  of  GDP  preserve  the  price  signal  to  reduce  energy  demand 
and increase energy efficiency (0.3% in 2023). 

(19) 

In  addition,  the  Council  also  recommended  that  Luxembourg  preserve  nationally 
financed  public  investment  and  ensure  the  effective  absorption  of  Recovery  and 
Resilience  Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and 
digital  transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally 

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19 

Net primary expenditure is defined as nationally financed expenditure net of (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
The figure represents the level of the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 
Measures  that,  according  to  Luxembourg,  remain  in  place  until  the  end  of  2024  are,  in  principle, 
assumed in the Commission Spring 2024 Forecast as having a budgetary impact also in 2025. 
This contribution is measured as the change in general government primary expenditure, net of  (i) the 
incremental  budgetary  impact  of  discretionary  revenue  measures,  (ii)  one-offs,  (iii)  cyclical 
unemployment  expenditure  and  (iv)  expenditure  financed by  non-repayable  support  (grants)  from  the 
Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  the  medium-term  (10-year)  average 
potential nominal GDP growth rate, expressed as a ratio to nominal GDP. 

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financed  public  investment  is  projected  to  decrease  marginally  to  4.6%  of  GDP  in 
2024 (from 4.7% of GDP in  2023). This  is mainly  caused by the delay in a military 
satellite  delivery,  which  is  now  expected  to  take  place  in  2025.  Taking  into  account 
this additional factor and given that Luxembourg’s public investment-to-GDP ratio is 
expected  to  remain  stable  and  at  a  high  level  over  the  forecast  horizon  in  the 
Commission  spring  forecast,  public  investment  in  2024  is  assessed  as  respecting  the 
Council recommendation. In turn, public expenditure financed from revenues from EU 
funds,  including  Recovery  and  Resilience  Facility  grants,  is  expected  to  increase  to 
0.2% of GDP in 2024 from 0.1% of GDP in 2023. 

(20)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
deficit of 1.9% of GDP in 2025. The general government debt-to-GDP ratio is set to 
increase  to  28.5%  by  the  end  of  2025.  The  increase  of  the  deficit  ratio  in  2025  is 
mainly  driven  by  higher  expenditure  on  compensation  of  public  employees,  social 
benefits and public investment. 

(21)  The  projected  demographic  shift  towards  an  ageing  population,  coupled  with  a 
reduction  in  net  migration,  is  projected  to  significantly  increase  government  pension 
spending  in  the  decades  ahead.  Pension  spending  is  projected  to  exceed  the  income 
from  contributions  in  the  second  half  of  this  decade,  with  this  deficit  gradually 
widening after that. This imbalance can be largely attributed to an increasing number 
of  pensioners  per  worker,  a  consequence  of  an  ageing  population,  which  leads  to  a 
higher  old-age  dependency  ratio.  In  the  Commission’s  2024  Ageing  Report,  without 
policy  adjustments,  the  reserve  designated  to  protect  the  pension  system’s  financial 
balance is projected to fall below the threshold envisaged by national legislation by the 
early 2040s. Projections suggest that once this threshold is reached, the reserve will be 
depleted  within  5  or  6  years.  In  the  longer  term,  the  increase  in  pension  spending  is 
expected  to  double,  reaching  approximately  17%  of  GDP  by  2070  –  potentially  the 
highest  proportion  within  the  EU.  This  would  put  the  financial  sustainability  of 
Luxembourg’s pension system at risk, while increasing government debt. Measures to 
encourage  longer  working  lives  and  higher  participation  rates  among  older  workers 
would help address this issue and support economic growth.  

(22)  Rapid population growth and an increase in mortgage lending outpaced supply growth 
in the housing market in the decade before the recent energy shock. The rigidity of the 
housing supply is primarily due to land retention practices. This has led to a significant 
housing  shortage,  rising  costs,  and  risks  of  market  overvaluation  and  reduced 
affordability  –  issues  that  disproportionately  affect  vulnerable  populations  and  may 
also affect Luxembourg’s attractiveness to both workers and businesses. In 2023, the 
housing  market  saw  a  sharp  downturn  due  to  the  lagging  effects  of  higher  energy 
prices and monetary tightening, which eroded consumer confidence. The ensuing drop 
in  new  housing  and  land  supply,  reaching  record  lows,  has  hindered  necessary  price 
corrections and precipitated a marked decrease in construction activity. Long-standing 
efforts  to  stabilise  market  prices  have  not  succeeded,  partly  because  the  tax  system 
raises  more  revenue  from  real  estate  sales  and  purchases  than  from  property 
ownership,  contributing  to  price  inflexibility  and  cyclical  increases.  Although  recent 
fiscal  measures  have  eased  the  financial  strain  in  households  and  the  construction 
industry,  subsidies  for  home  ownership  have  inflated  pre-tax  housing  prices,  mainly 
benefiting wealthy owners and investors.  

(23)  Luxembourg is a small and open economy with a large international financial sector, 
where many multinational  groups channel  large  financial  flows  in and out  as  part of 

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their  business  activities.  However,  a  significant  share  of  this  activity  takes  place 
between  entities  within  multinational  groups.  They  may  be  in  a  position  to  exploit 
loopholes  in  Luxembourg’s  tax  system  that  reduce  taxable  income.  Concerns  persist 
about measures that are too narrow in their scope, allowing for low or no withholding 
taxes on interest and royalty payments to low and zero tax jurisdictions20. The Pillar 2 
Directive  entered  into  force  on  1 January 2024  in  Luxembourg,  introducing  a 
minimum effective corporate tax rate of 15% for multinationals active in the country. 
Due to its scope, the Directive is expected to address the outbound payment issue only 
partially given that it is limited to large multinational corporates and excludes certain 
sectors.  

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan,  including  the  REPowerEU 
chapter when adopted, is essential to boost Luxembourg’s long-term competitiveness 
through the green and digital transition, while ensuring social fairness.  To deliver on 
the  commitments  of  the  plan  by  August  2026,  it  is  essential  for  Luxembourg  to 
continue the implementation of reforms and investments. The systematic involvement 
of  local  authorities,  social  partners,  civil  society  and  other  relevant  stakeholders 
remains essential to ensure broad ownership for the successful implementation of the 
recovery and resilience plan.  

(25)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  2021/1060,  Luxembourg  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 
identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan. This  review  forms  the basis for the definitive allocation of the EU 
funding included in each programme. While Luxembourg has made some progress in 
implementing cohesion policy programmes and the European Pillar of Social Rights, 
challenges  remain.  Luxembourg  also  continues  to  display  considerable  socio-
economic  disparities  between  cities,  towns,  suburbs  and  non-urban  areas.  It  is 
important  to  accelerate  cohesion  policy  implementation,  and  the  priorities  agreed  in 
the programmes remain relevant. It is particularly important to see fast implementation 
of  investments  related  to  the  green  and  digital  transition.  Investment  in  skills  to 
facilitate career transitions and professional mobility in line with labour market needs, 
with  special  attention to older workers and people with  low qualifications as well as 
the  activation  and  social  integration  of  vulnerable  people,  in  particular  those  with  a 
migrant  background,  remains  a  priority.  The  implementation  of  the  European  Child 
Guarantee,  especially  the  integration  of  disadvantaged  pupils  through  quality 
education and training, continues to be important. Luxembourg could also make use of 
the  Strategic  Technologies  for  Europe  Platform  initiative  to  support  industrial 
transformation,  in  particular  by  investing  in  strategic  value  chains  like  net-zero 
industry, decarbonisation of energy-intensive industries and digital innovation. 

(26)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Luxembourg  faces  several  additional  challenges  related  to 

20 

Low  or  zero-tax  jurisdictions  beyond  those  countries  included  in  the  Union  list  of  non-cooperative 
jurisdictions. 

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weaknesses  in  the  education  system  that  add  to  inequality  and  issues  related  to 
business investment, including R&D, energy policy and the green transition, including 
potential  obstacles  to  the  transition  from  fossil  fuels  and  issues  with  the  transport 
network. 

(27)  Pupils’  basic  skills  and  overall  performance  depend  largely  on  their  socio-economic 
and  linguistic  background.  Average  levels  in  key  knowledge  and  skills  at  age  15,  as 
measured by the Programme for International Student Assessment (PISA) in the latest 
2018  survey  that  Luxembourg  participated  in,  are  significantly  lower  than  the  EU 
average. The gap between advantaged students and their disadvantaged peers is bigger 
in Luxembourg than in any other EU country. The education system does not equip all 
pupils with the necessary basic skills to meet the country’s labour market needs. The 
national competence tests show that, when pupils start school, they have the essential 
basic skills to begin acquiring literacy, even though there are significant differences in 
their initial skills. However, by the time they start year 3 in primary school, aged 8, the 
skills  gap  widens.  Pupils’  performance  in  German  reading  comprehension  and 
mathematics  falls  noticeably,  particularly  the  performance  of  pupils  from  a 
disadvantaged  background  or  of  those  whose  first  language  is  neither  German  nor 
Luxembourgish.  The  green  transition  implies  structural  changes  within  the  labour 
market. In this context, upskilling and reskilling in declining and transforming sectors 
has increased, but risks of skills mismatches persist.  

in  partnership  with 

(28)  Participation  in  training  over  the  last  12  months  is  above  the  EU  average  (50%  vs 
46.6%),  but  remains  uneven  across  groups.  Although  it  is  very  high  among  the 
unemployed, it lags for people with low skills (24.2%) and for older workers (32.5%). 
Sectoral  studies  of  occupations  and  skills  conducted  by  the  Public  Employment 
Service 
the  business  federation  (Union  des  entreprises 
luxembourgeoises) show that, across all sectors, there are ever-increasing demands on 
skills  required  in  all  areas,  in  particular  the  importance  of  cross-disciplinary  skills 
(behavioural, digital, management, languages, etc.) and the ability to adapt to change. 
While the OECD confirmed Luxembourg’s high performance in skills in 2023, it also 
highlighted  major  challenges  such  as  talent  shortages,  low  participation  in  adult 
learning among  the most disadvantaged and  the lack of reliable data on skills  needs. 
Despite  numerous  initiatives  over  the  last  few  years  to  promote  vocational  training 
among jobseekers, address the challenges of digitalisation and strengthen the capacity 
to anticipate future skill needs, effective solutions are still needed to improve access to 
lifelong learning for the less skilled and older workers.  

(29)  Labour productivity in Luxembourg remains one of the highest in the EU. However, it 
has  experienced  a  marked  decline  since  the  global  financial  crisis,  and  this  has 
accelerated recently. For decades, business investment has been among the lowest in 
the  EU,  especially  in  R&D.  The  traditionally  low  investment  levels,  justified  by  the 
reduced  needs  of  Luxembourg’s  service-oriented  economy,  may  no  longer  suffice  in 
light  of  the  emerging  challenges  of  the  green  and  digital  transition,  on  top  of  pre-
existing ones. A shortage of workers is a major obstacle to investment, and this issue 
could worsen due to high house prices, long commutes and road congestion, reducing 
Luxembourg’s attractiveness as a workplace. The three wage indexations triggered by 
high  inflation  in  2023  –  the  first  time  this  has  happened  –  have  eroded  firms’ 
competitiveness  across  various  sectors,  with  non-financial  business  sectors, 
particularly the less productive ones, feeling the most impact. If this trend persists, it 
might hinder greenfield investment and sway firms’ relocation decisions.  

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(30)  Public support for business  innovation  in  Luxembourg is  currently limited compared 
to other countries, which often provide indirect support through tax credits for R&D. 
The government currently dedicates 25% of its R&D budget to specific projects, some 
of  which  involve  private  partners,  while  the  majority,  75%,  support  institutions. 
Business R&D receives a relatively small portion of its funding from the government, 
at  6%.  To  support  innovation  more  effectively,  Luxembourg  could  consider 
strengthening its funding model to include more collaborative projects with the private 
sector. By directly investing in business-led innovation, the country has the potential 
to stimulate private R&D efforts and increase its overall productivity. 

(31)  Maintaining  Luxembourg’s  role  as  a  global  financial  hub  while  ensuring  a  robust 
domestic  economy  presents  a  significant  challenge.  The  financial  sector,  which 
contributes  nearly  one-third  of  GDP,  has  greatly  benefited  from  international 
integration. However, the sector’s value added per worker dropped by 15% from 2021 
to  2023,  a  decline  that  has  doubled  since  2007,  indicating  diminished  gains  from 
global participation. With productivity in decline, diversification could help to reduce 
exposure  to  global  trade  and  finance  shifts.  Additionally,  the  gap  between  GDP  and 
national  income  is  now  at  30%  of  GDP,  a  disparity  that  has  grown  since  the  global 
financial  crisis.  Encouraging  investment  in  local  high-value  R&D  projects  could 
narrow the GDP-GNI gap and support national wealth and equity. 

(32)  Luxembourg’s  energy  system  is  characterised  by  its  high  import  dependence  and 
reliance  on  fossil  fuels  (77%  of  the  energy  mix  in  2022).  The  country  is  a  large  net 
importer of energy. It is almost entirely dependent on primary energy imports, with a 
dependency  rate  of  91%  in  2022.  The  total  installed  capacity  of  renewable  energy 
production reached 782 MW in 2023, an increase of 13.5% since 2022. However, the 
share  of  renewable  energy  in  gross  final  energy  consumption  remains  among  the 
lowest in the EU.  

(33)  Luxembourg has made significant progress in reaching the 2030 EU targets for energy 
efficiency, although most of the schemes are still grant-based and the use of financial 
instruments  is  still  very  limited,  in  particular  for  businesses  and  industry.  The  best 
results are in the service sector, while the residential sector still needs to catch up: its 
final  energy  consumption  has  remained  stable  since  2015.  Further  increases  in 
ambition for reducing greenhouse gas emissions and increasing renewable energy and 
energy  efficiency  will  be  needed  for  Luxembourg  to  reach  its  2030  energy  targets  – 
obtaining 25% of energy from renewables and reducing final energy consumption by 
40% to 44% compared to 2007. Labour and skills shortages in sectors and occupations 
key  for  the  green  transition,  including  manufacturing  and  the  deployment  and 
maintenance  of  net-zero  technologies,  are  creating  bottlenecks  in  the  transition  to  a 
net-zero  economy.  To  unlock  untapped  labour  supply,  these  measures  need  to  be 
accessible,  in  particular  for  individuals  and  in  sectors  most  affected  by  the  green 
transition.  

(34)  Road traffic congestion weighs on the economy  and on environmental sustainability. 
Road transport remains Luxembourg’s largest contributor to greenhouse gas emissions 
and remains key to decarbonisation. Luxembourg’s transition to sustainable transport 
is advancing, with the share of light duty electric vehicles exceeding the EU average. 
However, further investments are needed to increase the share of passenger and freight 
transport by rail, as road is used for 86% of passenger and freight transport, including 
in border regions to enhance cross-border connectivity. 

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In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
recommendation  on  the  economic  policy  of  the  euro  area.  For  Luxembourg, 
recommendations  (1),  (2),  (3)  and  (4)  help  implement  the  first,  second,  third  and 
fourth euro area recommendations. 

HEREBY RECOMMENDS that Luxembourg take action in 2024 and 2025 to:  

1. 

2. 

3. 

4. 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  Wind  down  the 
emergency  energy  support  measures  before  the  2024/2025  heating  season.  Address 
the  long-term  sustainability  of  the  pension  system,  in  particular  by  limiting  early 
retirement  options  and  by  increasing  the  employment  rate  for  older  workers. 
Accelerate  the  adoption  of  a  comprehensive  land  use  policy  and  a  property  tax 
reform and prioritise the development of large-scale district projects on government-
owned  land.  Increase  action  to  effectively  tackle  aggressive  tax  planning,  in 
particular  by  ensuring  sufficient  taxation  of  outbound  payments  of  interest  and 
royalties to zero/low-tax jurisdictions.  

Continue with the swift and effective implementation of the recovery and resilience 
plan,  including  the  REPowerEU  chapter  once  adopted,  ensuring  completion  of 
reforms and investments by August 2026. Accelerate the implementation of cohesion 
policy programmes. In the context of the mid-term review, continue focusing on the 
agreed  priorities,  while  considering  the  opportunities  provided  by  the  Strategic 
Technologies for Europe Platform initiative to improve competitiveness. 

Improve  the  performance  and  equity  of  the  school  education  system,  including  by 
adapting  teaching  to  the  needs  of  disadvantaged  students  and  those  from  various 
linguistic backgrounds. Address labour shortages and skills mismatches in particular 
for the green transition.  

Boost  competitiveness  by  supporting  business  and  greenfield  investment,  in 
particular  in  high  R&D  intensive  activities.  Reduce  reliance  on  fossil  fuels  by 
investing  in  energy  efficiency  and  renewable  energy.  Further  promote  the 
electrification of transport and invest in public transport networks and infrastructure. 

Done at Brussels, 

For the Council 
The President 

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