Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Luxembourg
Date: 2026-06-03
Institutions: European Commission, Reform and Investment Task Force
Subjects: Luxembourg, budget policy, economic policy, economic recovery, economic reform, employment policy, investment, macroeconomics, social policy, stability pact

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  EN 

   EUROPEAN COMMISSION  Brussels, 3.6.2026  COM(2026) 216 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Luxembourg {SWD(2026) 216 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 
Article 121(2) and Article 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  1466/97  (1),  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) 

Regulation  (EU)  2024/1263  specifies  the  objectives  of  the  economic  governance 
framework,  which  aims  at  promoting  sound  and  sustainable  public  finances, 
sustainable  and  inclusive  growth  and  resilience  through  reforms  and  investments,  as 
well  as  preventing  excessive  government  deficits.  The  Regulation  stipulates  that  the 
Council  and  the  Commission  conduct  multilateral  surveillance  in  the  context  of  the 
European Semester in accordance with the objectives and requirements set out in the 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  The  European  Semester 
includes, in  particular, the formulation and the surveillance of the implementation of 
country-specific recommendations.  

(2) 

On  16 July 2025,  the  Commission  adopted  its  proposal  for  a  regulation  establishing 
the European Fund for economic, social and territorial cohesion, agriculture and rural, 
fisheries and maritime, prosperity and security for the period 2028-2034 and amending 
Regulation (EU) 2023/955 and Regulation (EU, Euratom) 2024/2509 (2). The proposal 

1 

2 

EN 

Regulation 

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 
ELI: 
http://data.europa.eu/eli/reg/2024/1263/oj). 
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing  the  European 
Fund  for  economic,  social  and  territorial  cohesion,  agriculture  and  rural,  fisheries  and  maritime, 
prosperity  and  security  for  the  period  2028-2034  and  amending  Regulation  (EU)  2023/955  and 

(EC)  No 

2024/1263, 

30 4 2024, 

1466/97 

(OJ 

L, 

1 

  EN 

 
 
(3) 

(4) 

(5) 

aims to increase the effectiveness of Union funding by reducing the fragmentation of 
the  financial  architecture  and  to  support  Member  States  in  the  coordination  of  their 
economic policy in line with Article 175 of TFEU. 

On  25 November 2025  the  Commission  adopted  an  opinion  on  the  2026  draft 
budgetary plan of Luxembourg. On the same date, on the basis of Regulation (EU) No 
1176/2011,  the  Commission  adopted  the  2026  Alert  Mechanism  Report,  in  which  it 
did  not  identify  Luxembourg  as  one  of  the  Member  States  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, a recommendation 
for  a  Council  recommendation  on  human  capital  in  the  European  Union,  and  a 
proposal for the 2026 Joint Employment Report, which analyses the implementation of 
the Employment Guidelines and the principles of the European Pillar of Social Rights. 
The Council adopted the Recommendation on the economic policy of the euro area (3) 
on  21 April 2026  and  the  Joint  Employment  Report,  and  the  Recommendation  on 
human capital on 9 March 2026. 

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic  framework  that  aims  to  boost  the  Union’s  global  competitiveness  over  the 
next  five  years.  It  identifies  the  three  transformational  imperatives  of  innovation, 
decarbonisation  and  competitiveness,  and  security  as  critical  pillars  for  sustainable 
economic  growth.  The  European  Semester  is  aligned  with  the  Competitiveness 
Compass,  ensuring  that  Member  States’  economic  policies  are  consistent  with  the 
Commission’s  strategic  objectives,  creating  a  unified  approach 
to  economic 
governance that fosters sustainable growth, innovation and resilience across the Union. 

In  2026,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  final  stage  of  the  Recovery  and  Resilience  Facility  (RRF) 
implementation  (4).  Recovery  and  resilience  plans  (RRPs),  alongside  with  cohesion 
policy  funding,  have  been  essential  for  delivering  on  the  policy  priorities  under  the 
European  Semester,  as  the  plans  were  required  to  effectively  address  all  or  a 
significant  subset  of  challenges 
relevant  country-specific 
identified 
recommendations  issued  in  recent  cycles.  and  programmes  funded  by  the  European 
cohesion policy were required to take country-specific recommendations into account. 
As  the  RRF  approaches  the  end  of  its  lifetime,  it  remains  essential  to  sustain  the 
reforms  and  investments  supported  and  implemented  under  the  RRF,  in  particular 
those  that  contribute  to  addressing  challenges  identified  in  the  country-specific 
recommendations. 

the 

in 

(6) 

On 3 June 2026, the Commission published the 2026 country report for Luxembourg. 
It  assessed  Luxembourg’s  progress  in  addressing  the  relevant  country-specific 
recommendations and took stock of Luxembourg’s implementation of the RRP. On the 
basis  of  that  analysis,  the  country  report  identified  the  most  pressing  challenges 
Luxembourg  is  facing.  It  also  assessed  Luxembourg’s  progress  in  implementing  the 
European  Pillar  of  Social  Rights  and  in  achieving  the  Union  headline  targets  on 

3 
4 

Regulation (EU, Euratom) 2024/2509 - COM(2025) 565 final. The proposed Regulation is currently the 
subject of negotiations with the co-legislators. 
OJ C, C/2026/2434, 28 4 2026, ELI: http://data.europa.eu/eli/C/2026/2434/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). 

the  Recovery  and  Resilience  Facility 

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(7) 

(8) 

(9) 

employment, skills and poverty reduction, as well as progress in achieving the United 
Nations Sustainable Development Goals. 

On  21 January 2025,  the  Council,  upon  the  assessment  and  recommendation  of  the 
Commission, adopted a Recommendation endorsing the national medium-term fiscal-
structural  plan  of  Luxembourg  (5).  The  plan  covers  the  period  from  2025  until  2029 
and sets a budgetary constraint in the form of a maximum net expenditure growth rate 
over  five  years.  The  Council  recommended  the  following  maximum  growth  rates  of 
net expenditure: 5.8% in 2025, 4.7% in 2026, 3.8% in 2027, 5.4% in 2028 and 4.7% in 
2029,  which  correspond  to  the  maximum  cumulative  growth  rates  calculated  by 
reference to the base year of 2023 of 14.2% in 2025, 19.6% in 2026, 24.1% in 2027, 
30.8% in 2028 and 36.9% in 2029. 

Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  has  invited  Member 
States  to  request  the  activation  of  the  national  escape  clause  of  the  Stability  and 
Growth Pact in a coordinated manner to support the EU efforts to achieve a rapid and 
significant  increase  in  defence  spending  (6)  and  this  proposal  was  welcomed  by  the 
European Council of 6 March 2025. Member States may still request the activation of 
the national escape clause at any time until 2028, if they fulfil the criteria set in Article 
26 of Regulation (EU) 2024/1263. 
On  29 April 2026,  Luxembourg  submitted  its  2026  Annual  Progress  Report  (7)  on 
adherence  to  the  recommended  maximum  growth  rates  of  net  expenditure  and  the 
implementation  of  reforms  and  investments  responding  to  the  main  challenges 
identified  in  the  European  Semester  country-specific  recommendations.  The  Annual 
Progress Report also reflects Luxembourg’s biannual reporting on the progress made 
in  implementing  its  recovery  and  resilience  plan  in  accordance  with  Article  27  of 
Regulation (EU) 2021/241. 

(10)  Real  GDP  growth  in  2025  was  0.6%  and  HICP  inflation  stood  at  2.5%.  The 
Commission  Spring  2026  Forecast  projects  real  GDP  to  grow  by  1.6%  in  2026  and 
2.0% in 2027, and HICP inflation to stand at 2.7% in 2026 and 1.8% in 2027. 
(11)  Based  on  data  provided  by  Eurostat  (8),  Luxembourg’s  general  government  balance 
moved from a surplus of 0.9% of GDP in 2024 to a deficit of 2.0% of GDP in 2025. 
The deterioration in the general government balance in 2025 mainly reflects moderate 
growth  of  revenues,  partly  explained  by  the  impact  of  measures  to  safeguard 
purchasing power and competitiveness, and dynamic expenditure, partly explained by 
sustained  investment.  Based  on  policy  measures  known  by  the  cut-off  date  of  the 
forecast, the Commission Spring 2026 Forecast projects a deficit of 1.2% of GDP in 
2026 and 1.5% of GDP in 2027. 

5 

6 

7 

8 

Council Recommendation of 21 January 2025 endorsing the national medium-term fiscal-structural plan 
of Luxembourg (OJ C/2025/[650], 10 02 2025, ELI: http://data.europa.eu/eli/C/2025/650/oj. 
Communication  from  the  Commission,  'Accommodating  increased  defence  expenditure  within  the 
Stability and Growth Pact’, Brussels, 19 3 2025, C(2025) 2000 final. 
The  2026  Annual  Progress  Reports  are  available  on:  https://economy-finance.ec.europa.eu/economic-
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en  
Eurostat-Euro Indicators, 22 04 2026. 

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(12)  Based  on  the  Commission’s  estimates,  the  fiscal  stance  (9),  which  includes  both 
nationally and EU financed expenditure, was expansionary, by 1.7% of GDP, in 2025. 
It  is  projected  to  be  contractionary,  by  0.4%  of  GDP  in  2026,  and  expansionary,  by 
0.9% of GDP in 2027. 

(13)  Based  on  data  provided  by  Eurostat  (10),  Luxembourg’s  general  government  debt 
increased from 26.3% of GDP at the end of 2024 to 26.5% of GDP at the end of 2025. 
Based on policy measures known at the cut-off date of the forecast, the Commission 
Spring 2026 Forecast projects the debt-to-GDP ratio to increase to 29.2% by the end 
of 2026 and to further increase to 30.2% by the end of 2027. 

(14)  Based  on  Eurostat  data  (11),  total  general  government  defence  expenditure  in 
Luxembourg amounted to 1.0% of GDP in 2025. According to the Commission Spring 
2026 Forecast, it is projected at 1.2% of GDP in 2026. 

(15)  The  Union  continues  to  face  risks  of  energy  supply  disruptions  and  elevated  price 
volatility,  exacerbated  by  geopolitical  tensions  which  affect  global  oil  and  gas 
markets.  Experience  from  the  2022–2023  energy  crisis  has  shown  that  broad  and 
untargeted  measures  entail  large  fiscal  costs  and  are  socially  and  economically 
inefficient.  Since  the  outbreak  of  the  war  in  the  Middle  East  in  February  2026, 
Luxembourg  has  not  adopted  new  fiscal  policy  measures  to  mitigate  the  impact  of 
high energy prices on households and firms. 

(16) 

 Based  on  the  Commission’s  calculations,  net  expenditure  in  Luxembourg  grew  by 
8.7% in 2025: and 15.7% cumulatively in 2024 and 2025. The net expenditure growth 
in  2025  is  above  the  recommended  maximum  growth  rate,  corresponding  to  a 
deviation of 1.3% of GDP in annual terms. When considering 2024 and 2025 together, 
the  cumulative  growth  rate  of  net  expenditure  is  also  above  the  recommended 
maximum growth rate, corresponding to a deviation of marginally above 0.6% of GDP 
in cumulative terms. 

(17)  Based on the Commission’s calculations, net expenditure in Luxembourg is projected 
to  grow  by  3.5%  in  2026,  and  19.7%  cumulatively  in  2024,  2025  and  2026.  The 
projected  net  expenditure  growth  in  2026  is  below  the  recommended  maximum 
growth  rate.  When  considering  2024,  2025  and  2026  together,  the  projected 
cumulative deviation of net expenditure reduces to less than 0.1% of GDP. 

(18)  Luxembourg’s  pension  system  faces  medium  and 

long-term  challenges  as 
demographic trends are projected to threaten its sustainability. According to the 2024 
Ageing report, Luxembourg’s pension expenditure is projected to reach 17.5% of GDP 
in 2070, an increase of 8.3 pps from 2022, the highest increase in the EU. In December 
2025,  Luxembourg  adopted  a  pension  reform.  The  reform  mainly  consists  of  an 
increase  in  the  contribution  rate  of  1.5  pps  to  25.5%,  limited  measures  to  increase 
prolonging careers by providing tax advantages, introducing the right for a progressive 

9 

10 
11 

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 including expenditure financed by non-repayable 
support (grants) from the Recovery and Resilience Facility and other Union funds. 
Eurostat-Euro Indicators, 22 04 2026. 
Eurostat, government expenditure by classification of functions of government (COFOG). 

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pension, and increasing the mandatory contribution period of  most early retirees (12). 
Overall,  the  reform  appears  neither  to  be  sufficient  to  address  the  structural  issues 
affecting  the  sustainability  of  the  pension  system  nor  likely  to  significantly  increase 
the  low  participation  rate  among  workers  aged  55–64.  Population  ageing,  in 
combination with a projected slowdown in employment growth to below the annual 2-
3% increase needed to keep the system in balance, is projected to lead to a deficit in 
the  Pillar  I  pension  system  in  2029  and  a  depletion  of  its  reserves  in  2048.  Pension 
benefits  are  high,  with  a  gross  replacement  rate  of  75%  in  2022  (13),  while  the  time 
spent  in  retirement  is  the  longest  in  the  EU  (25.2  years  for  Luxembourg  compared 
with  21.3  for  the  EU  average  in  2022)  (14).  Luxembourg  recorded  the  lowest 
participation  rate  of  workers  aged  55-64  in  the  EU  in  2025  (51.9%  compared  with 
69.5% in the EU) (15). Although the statutory retirement age is 65, early retirement is 
possible  from  age  57,  resulting  in  one  of  the  lowest  effective  retirement  ages  in  the 
EU.  Measures  to  encourage  longer  careers  and  higher  participation  rates  among 
workers aged 55-64 would help support pension sustainability and economic growth. 

(19)  Luxembourg  is  confronted  with  a  severe  housing  challenge,  as  affordability  has 
markedly declined over the past decade due to soaring property prices. After doubling 
over a decade, house prices started to correct after their peak in 2022, falling over 15% 
in  two  years.  The  decrease  was  triggered  by  the  sharp  rise  in  interest  rates  that 
impacted negatively the borrowing capacity. But despite this, prices have since started 
to rise again and, in 2025, house prices in Luxembourg were 60% higher than a decade 
ago  in  nominal  terms  while  the  average  wage  increased  by  only  40%  in  the  same 
period.  Luxembourg  is  the  EU’s  most  expensive  housing  market.  High  house  prices 
are due to a supply-demand imbalance, driven by population growth and reinforced by 
a  tax  framework  that  supports  demand  and  favours  land  hoarding,  and  by  a 
concentration  of  land  ownership.  The  land  mobilisation  and  tax  reform  remains 
unimplemented  and  the  amended  bills  offer  more  possibilities  for  tax  exemptions. 
Ambitious  reforms  such  as  measures  to  unlock  more  land  for  development  and 
implement  large district  projects  on public land would  help  increase housing  supply, 
including through the supply of affordable housing. Furthermore, on the demand side, 
phasing out mortgage interest deductibility would help to curb house prices. Priorities 
also  include  strengthening  the  macroprudential  framework  to  reduce  systemic  risks 
linked  to  the  high  level  of  households’  indebtedness  and  the  significant  share  of 
mortgages with variable interest rates. 

(20)  Luxembourg  faces  significant  transportation  challenges  due  to  high  cross-border 
commuter  traffic  and  high  dependency  on  cars,  including  company  cars,  which  is 
exacerbated  by  insufficient  housing  supply  that  results  in  workers  residing  further 
away  from  their  workplace  (16).  This  situation  has  resulted  in  traffic  congestion, 
impacting  environmental  sustainability.  While  Luxembourg  has  made  progress  in 
improving  public  transport,  a  coordinated  cross-border  strategy  would  be  needed  to 
address the needs of its commuting workforce. This includes improving connectivity, 
integrating  rail  transport  infrastructure  with  neighbouring  countries,  integrating 
ticketing systems and improving last-mile connections. 

12 
13 
14 

15 
16 

Loi de 19 Decembre 2025 (Pension reform) and loi de 19 Decembre 2025 (Tax incentives). 
OECD: OECD Economic Surveys: Luxembourg 2025. 
2024  Ageing  report:  Arithmetic  mean  of  female  and  male  life  expectancy  at  65  plus  65  minus  the 
average labour market exit age. 
Eurostat: lfsa_argan  
Statec, 2025, P2021 N°18 - La dépendance automobile persiste pour les déplacements domicile-travail. 

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(21)  Luxembourg remains  exposed to  aggressive tax  planning risks linked to  its role as a 
major  financial  hub  hosting  numerous  multinational  groups  and  large  cross-border 
investment  stocks.  Luxembourg  has  transposed  relevant  European  Union  legislation, 
including the Council Directive (EU) 2022/2523 (17) (the ‘Pillar 2 Directive’), as well 
as additional measures at national level, while the scope of Pillar 2 is limited to large 
entities with an annual revenue of at least EUR 750 million. Specifically, Luxembourg 
introduced  a  non-deductibility  rule  for  interest  and  royalty  payments.  However  the 
scope  of  this  measure,  which  applies  to  jurisdictions  on  the  European  Union  list  of 
third country jurisdictions for tax purposes, is limited.  

(22)  The systematic, meaningful and timely involvement of local and regional authorities, 
social partners, civil society and other relevant stakeholders remains essential in order 
to  ensure broad ownership  for the successful  implementation  of the Union’s funding 
instruments, as well as in the context of the European Semester. 

(23)  The implementation  of cohesion  policy programmes,  which encompass support from 
the  European  Regional  Development  Fund  (ERDF),  the  Just  Transition  Fund  (JTF) 
and the European Social Fund Plus (ESF+) in Luxembourg, is above the average pace 
at  EU  level,  both  in  terms  of  project  selection and  payments.  It  is  important  to  keep 
current  momentum,  while  maximising  the  impact  of  investments  on  the  ground, 
Luxembourg  is  already  taking  action  under  its  cohesion  policy  programmes  to  boost 
competitiveness  and  growth.  Nevertheless,  some  areas  may  require  further 
strengthening in implementation, including those relating to digitalisation and energy 
infrastructures under the JTF. 

(24)  Luxembourg  faces  several  challenges  related  to  innovation  and  competitiveness  the 
energy transition and the environment, equality in schools, upward social convergence 
and human capital development. 

(25)  Despite its  strong scientific base and internationally well-connected research system, 
business  innovation  and  the  scale-up  opportunities  of  local  innovative  start-ups  and 
small to medium-sized enterprises (SMEs) remain limited. Luxembourg’s potential for 
adoption  of  new  technologies  and  digitalisation  remains  under-exploited,  with 
Luxembourg  performing  below  the  EU  average  in  terms  of  basic  digital  intensity  of 
SMEs  (18),  while  a  large  share  of  innovative  technology  investment  is  made  within 
multinational  groups,  weighing  on  the  diversification  and  competitiveness  of  the 
economy.  Additionally,  the  country’s  business  R&D  intensity  has  been  on  a 
downward trend over the last two decades, falling to 0.45% of GDP in 2024, far below 
the  EU  average  of  1.49%.  While  partly  explained  by  Luxembourg’s  services-based 
economy,  business  R&D  spending  is  substantially  lower  than  in  top-performing 
countries across a broad range of sectors (19). Moreover, the quality of research outputs 
is not fully leveraged, with science-business linkages remaining weak. 

(26)  Luxembourg’s  economy  remains  highly  competitive,  notably  through  its  large 
international financial sector. Yet it remains exposed to structural pressures linked to 
declining  productivity.  Between  2015-2025  total  factor  productivity  decreased  by 

17 

18 

19 

Council  Directive  (EU)  2022/2523  of  14  December  2022  on  ensuring  a  global  minimum  level  of 
taxation for multinational enterprise groups and large-scale domestic groups in the Union [2022] OJ L 
328, 22.12.2022, p. 1. 
Eurostat,  (isoc_e_dii)  and  Luxembourg  Startup  Ecosystem  Assessment  and  Benchmarking,  Ministère 
de l’Economie, 2023. 
OECD Economic Surveys: Luxembourg 2025. 

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around  4%,  while  the  EU  aggregate  recorded  an  increase  of  around  6%.  The  main 
driver  of  this  decline  was  the  financial  sector,  where  gross  value  added  per  hour 
worked fell by around 11.6% over the same period. Rising international competition, 
evolving European Union regulatory requirements, labour market constraints, and the 
still limited diversification to higher-value activities, weigh on the resilience and long-
term  competitiveness  of  the  economy.  In  that  context,  Luxembourg  should  step  up 
efforts to further diversify the financial sector by improving conditions for innovation 
and  adoption  of  new 
those  domestically  produced. 
Strengthening  competition  and  market  access  in  relevant  business  and  professional 
services,  facilitating  innovation  diffusion,  and  further  improving  the  business 
environment framework conditions would allow productivity gains. 

technologies, 

including 

(27)  Luxembourg  combines  high  household  savings  and  a  highly  developed  investment-
fund  ecosystem.  However,  it  has  a  modest  domestic  transmission  of  long-term  risk 
capital towards innovation activities which continues to weigh on the diversification of 
the  economy  and  on  the  diffusion  of  productivity  gains.  While  Luxembourg  has 
strengthened  parts  of  its  innovation-finance  architecture,  including  public  support 
instruments and tax incentives for start-up investment, available evidence suggests that 
financing  constraints  remain  particularly  relevant  for  later-seed,  growth  and  scaling 
stages,  and  that  existing  instruments  do  not  sufficiently  channel  households’  savings 
toward  innovative  domestic  firms.  In  that  context,  facilitating  greater  household 
participation  in  diversified equity and long-term investment  funds, under appropriate 
consumer-protection  safeguards  and  with  incentives  linked  to  long  holding  periods, 
can help channel household savings into the financing of innovation. 

(28)  Supplementary  pension  coverage  in  Luxembourg  remains  limited.  Access  to 
occupational  supplementary  schemes  largely  depends  on  employer  initiative,  which 
may reduce access, particularly for employees of smaller firms. Furthermore, legal and 
fiscal uncertainty may also deter participation by parts of the cross-border workforce. 
At  the  same  time,  Luxembourg  has  a  highly  developed  financial  sector  to  support  a 
wider  access  to  supplementary  pension  arrangements  and  an  adequate  legal  and 
regulatory  framework.  Improving  the  availability  of  simple,  portable  and  cost-
transparent supplementary pension schemes, such as through the introduction of auto-
enrolment,  could  help  broaden  participation  in  long-term  savings  and  support 
retirement  adequacy,  particularly  for  workers  who  do  not  have  access  to  a  scheme 
through their employer. 

(29)  While  Luxembourg  is  committed  to  improving  the  regulatory  environment  for  the 
business  services  sector,  significant  regulatory  barriers  remain.  According  to  the 
OECD  (20)  and  the  European  Commission  (21),  regulatory  restrictions  are  still 
particularly  high  for  lawyers,  notaries,  architects,  civil  engineers,  and  accountants. 
Barriers  to  competition  can  be  due  to  limited  pathways  to  access  some  professions, 
various administrative obligations, the existence  of binding tariffs, or the prohibition 
of any form of advertising and marketing (22). Reducing the requirements or increasing 
flexibility would boost competition in the sector of regulated professions. In the retail 
sector, regulatory restrictions are still slightly higher than in peer countries, although 
they have significantly decreased since 2018. Additionally, Luxembourg’s barriers to 

20 
21 

22 

OECD, Product Market Regulation indicators, 2024. 
European  Commission,  Communication  on  updating  the  reform  recommendations  for  regulation  in 
professional services, COM(2021)385, 9 7 2021. 
OECD, OECD Economic Surveys: Luxembourg OECD, p. 106, April 2025. 

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intra-European Economic Area (EEA) services trade are among the highest in the EU 
(23), impacting key sectors such as construction and accounting. 

(30)  Despite  recent  notable  reductions  in  greenhouse  gas  emissions  from  road  transport, 
through policies such as the National Mobility Plan 2035 (24) and free public transport, 
the  sector  remains  the  primary  source  of  greenhouse  gas  emissions,  accounting  for 
59%  of  total  emissions  in  Luxembourg’s  effort-sharing  sectors  in  2024  (25).  It  also 
contributes  significantly  to  emissions  of  other  air  pollutants,  accounting  notably  for 
62% of NOx, and 32% of PM10 emissions in 2023 (26). While Luxembourg has made 
progress in promoting electric vehicles, further decarbonising transport and investing 
in public transport infrastructure would help reduce emissions in line with the national 
2030  emission  reduction  target  and  Luxembourg’s  EU  2030  target  as  determined  in 
the Effort Sharing Regulation (27). 

(31)  Efforts  to  decrease  fossil  fuel  dependency  through  energy  efficiency  measures  in 
residential and non-residential buildings have seen little progress. Between 2019 and 
2024,  Luxembourg’s  final  energy  consumption  in  the  residential  sector  plateaued, 
despite  energy  savings  of  households.  Savings  were  mainly  offset  by  the  increased 
number  of  dwellings  and  larger  homes.  Last  year,  Luxembourg  extended  the 
‘Klimabonus Wunnen’ scheme beyond 2025, with the intention to increase the energy 
savings  in  the  existing  building  sector.  Luxembourg  plans  to  align  with  the  EU’s 
minimum  energy  performance  standards,  based  on  nationally  determined  thresholds, 
to improve energy savings in non-residential buildings. While industry accounts for a 
relatively  small  share  of  total  GHG  emissions  in  Luxembourg  and  has  significantly 
reduced  its  emission  intensity,  industrial  GHG  emissions  remain  closely  linked  to 
energy  use.  While  a  range  of  voluntary  schemes,  support  frameworks  and  emerging 
technologies are in place for industry decarbonisation, they do not yet fully address the 
scale and speed of transformation required. 

(32)  The  transmission  system  operator  sees  a  need  to  modernise  the  high-voltage  grid  to 
handle  the  renewable  energy  transmission  needs,  and  to  increase  its  capacity  to  deal 
with the expected demand in the near future, including cross-border interconnections. 
In  2025,  Luxembourg  started  to  advance  its  renewable  energy  transition  through  the 
adoption  of  51  concrete  measures,  which  included  i.a.  the  acceleration  and 
simplification  of  renewable  deployment  via  measures  such  as  digitalised  permitting 
procedures,  optimised  land  use  or  citizen  involvement.  The  full  and  timely 
implementation of those measures is key for Luxembourg to reach its target of 37% of 
renewable energy in its energy mix by 2030. 

(33)  Luxembourg  faces  environmental  challenges  related  to  water  quality,  ecosystem 
degradation  and  land  use,  with  implications  for  environmental  sustainability  and 
economic activity. Water resources are under pressure from a combination of factors, 
including nutrient and pesticide pollution, industrial emissions and physical alterations 
of  water  bodies,  affecting  both  surface  water  and  groundwater  and  creating  risks  for 
water availability and quality. Ecosystems are under increasing strain from pollution, 

23 
24 
25 

26 
27 

European Commission staff calculation based on the OECD, intra-EEA STRI database. 
PNM 2035 - Plan national de mobilité - Le gouvernement luxembourgeois. 
The effort-sharing emissions for 2023 are based on approximated inventory data. The final data will be 
confirmed in 2027 after a comprehensive review. 
EEA, Air pollutant emissions data viewer (Gothenburg Protocol, Air Convention) 1990-2023, 2026. 
Commission Implementing Decision (EU) 2020/2126. 

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(34) 

(35) 

land-take and climate change, while a substantial share of economic activity depends 
on ecosystem services. Forest health has deteriorated over recent decades, in particular 
as a result of climate-related damage caused by multiple droughts since 2018. This has 
reduced the capacity of forests to provide key services such as carbon storage, water 
regulation  and  biodiversity  protection.  These  challenges  highlight  the  importance  of 
improving  water  quality,  further  promoting  sustainable  agriculture  and  strengthening 
climate-adapted  forest  management.  While  Luxembourg  has  taken  steps  to  improve 
water  management,  promote  more  sustainable  land  and  agricultural  practices  and 
strengthen the policy framework for forests, gaps remain and pressures on ecosystems 
persist. Strengthening governance and coordination across environmental, climate and 
agricultural policy areas, and addressing investment gaps, would support the effective 
implementation  of  measures  focusing  on  water,  land  use  and  climate  adaptation.  In 
addition, investing in circularity measures, in particular upstream, would contribute to 
reducing  environmental  pressures  and  supporting  a  more  sustainable  and  resilient 
economy. 

In light of the crucial role of human capital in enhancing the Union’s competitiveness 
and  strategic  autonomy,  in  2026  the  Council  recommended  that  Member  States  take 
action  to  urgently  address  human  capital-related  structural  challenges  in  the  areas  of 
skills  and  education,  which  hamper  competitiveness.  The  2026  country-specific 
recommendations  addressed  to  Luxembourg  can  contribute  to  the  implementation  of 
the Council Recommendation on human capital in the Union. 

In  Luxembourg’s  education  system,  disparities 
in  educational  performance, 
particularly  among  students  from  diverse  linguistic  backgrounds,  persist.  The 
multilingual nature of instruction, particularly challenging for nearly 70% of students 
not exposed to Luxembourgish at home, contributes to enduring achievement gaps (28) 
that  are  further  reinforced  by  socio-economic  background  and  early  streaming  into 
different educational tracks. A newly adopted reform, with implementation beginning 
in September 2027, introduces a choice between German and French as the language 
of literacy  and aims to  address  these challenges,  and  its  effectiveness  will ultimately 
depend on schools’ capacity to adapt teaching methods to meet the specific needs  of 
these  students.  Meanwhile,  higher  early  school  leaving  and  NEET  levels  among 
disadvantaged  and  non-native  students,  combined  with  the  overrepresentation  of 
higher socio-economic groups in better-performing European public schools, point to 
systemic  inequalities.  As  Luxembourg  records  one  of  the  EU’s  largest  performance 
gaps  linked  to  parental  education  (29),  targeted  support  for  linguistically  diverse  and 
disadvantages  students  is  essential  to  ensure  equitable  opportunities  and  reduce 
disparities. 

(36)  Luxembourg  continues  to  face  significant  labour  market  challenges  related  to  skills 
mismatches  and  labour  market  participation.  Despite  Luxembourg’s  generally  high 
level  of  economic  development,  unemployment  has  increased  in  recent  years  and 
increased,  with 
exceeded 
macroeconomic  mismatches  reaching  26.8%  in  2024,  significantly  above  the 
European  Union  average,  reflecting  significant  disparities  in  employment  outcomes 
across  skill  levels.  The  labour  market  is  characterised  by  strong  demand  for  high-
skilled  workers,  while  employment  prospects  remain  more  limited  for  low-qualified 

the  Union  average.  Skills  mismatches  have  also 

28 

29 

EN 

ÉpStan  Dashboard:  Results  from 
Standardisées’ http://dashboard.epstan.lu. 
ICILS, 2023. 

the  Luxembourg  school  monitoring  programme  ‘Épreuves 

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individuals,  contributing  to  inequalities  and  in-work  poverty.  However,  recorded 
levels of poverty were lower in 2025, likely due to improvements in data collection on 
income  and  living  conditions,  although  previous  data  showed  levels  were  already 
decreasing. The at-risk-of-poverty or social exclusion rate now stands at 18.2% (EU: 
20.8%). At the same time, the employment and activity rates of older workers remain 
the lowest in the European Union, with long-term unemployment concentrated among 
workers  aged  45  and  above,  and  participation  in  adult  learning  remains  limited, 
constraining  the  capacity  of  workers  to  adapt  to  evolving  skill  needs.  While 
Luxembourg  has  taken  measures  to  improve  employment  prospects  and  support 
upskilling  and  reskilling,  their  impact  remains  fragmented;  a  more  coordinated 
approach to skills development and active labour market policies, including promoting 
vocational  education  and  training  and  enhancing  lifelong  learning,  would  support 
employability,  address  skills  mismatches  and  improve  labour  market  performance. 
Addressing  these  challenges  would  also  contribute  to  supporting  upward  social 
convergence, in line with the Commission services’ second-stage country analysis of 
the Social Convergence Framework (30). 

In view of the close interlinkages between the economies of euro-area Member States 
and  their  collective  contribution  to  the  functioning  of  the  economic  and  monetary 
union,  in  2026  the  Council  recommended  that  the  euro-area  Member  States  take 
action, including through their RRPs, to implement the 2026 Recommendation on the 
economic  policy  of  the  euro  area.  For  Luxembourg,  the  recommendation  (1)  helps 
implement the first, the second, the third, the fifth and the fourteenth recommendations 
on the euro area, recommendation (2) helps implement the fourth recommendation on 
the euro area, recommendation (3) helps implement the seventh, the eighth, the ninth 
and  the  eleventh  recommendations  on  the  euro  area,  recommendation  (4)  helps 
implement the seventh recommendation on the euro area and the recommendation (5) 
helps implement the fifth recommendation on the euro area. 

(37) 

HEREBY RECOMMENDS that Luxembourg take action in 2026 and 2027 to: 

1. 

In view of the material deviation recorded in 2025 and deviation projected for 2026 
by the Commission vis-à-vis the recommended net expenditure ceiling, take action to 
control net expenditure so that it respects the maximum growth rates recommended 
by the Council on 21 January 2025. Reinforce defence spending and readiness while 
ensuring  spending  efficiency  and  gradually  adapting  the  budget  to  sustain 
structurally higher defence spending. Ensure that any measures taken to mitigate the 
impact of the hike in energy prices are temporary, targeted at protecting vulnerable 
households or at addressing the needs of energy-intensive firms, preserve incentives 
for  energy  savings  while  ensuring  that  their  fiscal  cost  is  compatible  with  the 
commitments under the EU fiscal framework. Address the long-term sustainability of 
the pension system, in particular by limiting early-retirement options and increasing 
the participation and employment rate of older workers. Increase housing supply, in 
particular  by  adopting  a  comprehensive  land-use  policy  and  a  property  tax  reform, 
developing 
land,  and  strengthening 
coordination  with  urban  planning  and  cross-border  public  transport.  Mitigate  risks 
related  to  the  housing  market  by  phasing  out  fiscal  incentives  to  borrow  and  by 
strengthening  the  macroprudential  framework.  Take  further  action  to  effectively 

large-scale  district  projects  on  public 

30 

SWD(2026)122  –  Second-stage  country  analysis  on  social  convergence  in  line  with  the  Social 
Convergence Framework (SCF), 2026. 

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2. 

3. 

4. 

5. 

tackle  aggressive  tax  planning,  in  particular  by  ensuring  sufficient  taxation  of 
outbound payments of interest and royalties to zero-/low-tax jurisdictions. 

Ensure continuity of reforms and investments implemented under the Recovery and 
Resilience  Facility.  Sustain  implementation  momentum  under  cohesion  policy 
programmes  building,  where  appropriate,  on  the  reallocation  to  strategic  priorities 
and flexibilities in the mid-term review of the cohesion policy framework. 

Foster  investment  in  innovation  and  support  high  R&D  intensive  activities.  Boost 
competitiveness by promoting diversification in the financial sector, accelerating the 
uptake  of  advanced  digital  technologies  by  SMEs,  and  enabling  business  scale-up 
and  productivity  growth.  Address  the  innovation  financing  gap,  including  through 
greater households’ investment in equity and investment funds, alongside improved 
availability of supplementary pension schemes. Remove barriers to competition, such 
as to the provision of services and in regulated professions. 

Continue  efforts  in  sustainable  and  efficient  transport  by  further  promoting  the 
decarbonisation  of  transport  and  investing  in  public  transport  infrastructure  and 
connectivity  in  rural  areas.  Reduce  overall  reliance  on  fossil  fuels  by  investing  in 
energy  efficiency  in  buildings.  Modernise  the  high-voltage  grid  and  increase  its 
capacity, improve cross-border interconnections, and ease permitting procedures for 
renewable  energy  deployment.  Support  municipalities  in  deploying  renewable 
energy.  Improve  climate  and  water  resilience  including  through  sustainable 
management of natural resources, stronger cross-sectoral governance, and circularity 
measures. 

Improve  the  performance  of  the  school  system  and  ensure  equal  opportunities  in 
schools by adapting teaching to the needs of disadvantaged students and those from 
various  linguistic  backgrounds.  Address  skills  mismatches  by  enhancing  lifelong 
learning and improving active labour market policies. 

Done at Brussels, 

For the Council 
The President 

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