1. Euro Challenge 2012
Luxembourg
An overview of Luxembourg’s economy
The stability of its banks and the productivity of its manufacturing
industry sheltered the wealthiest country in the EU from the worst of the
financial and economic turmoil of the global crisis.
This tiny founding member of the GDP contracted by 3.4% in 2009,
European Coal and Steel less than the majority of euro
Community, the precursor to area member states.
today’s European Union, has Unemployment, which had risen
always been one of the major slowly from a comparatively low
proponents of European integration. level since the beginning of 2008,
Did you know…? The Grand-Duchy of Luxembourg is projected to remain around 6%
adopted the Euro in January 1999. in 2012.
Geography The country is
one of the smallest in the
Natural resources fuelled the The government responded
entire EU, and ranked 175th in
country’s industrial development in quickly to crisis. A prompt and
size in the entire world.
past decades, especially in steel aggressive policy response
History The recorded history production. Luxembourg was once safeguarded the financial sector
of Luxembourg starts in 963, home to Arcelor, now ArcelorMittal, and mitigated adverse economic
and in the 14th and 15th the greatest steel producer of the effects
centuries members of the world. The country’s economy is
House of Luxembourg reigned tightly linked to all of its neighbors, Concerns about the future size of
as Holy Roman Emperors. which coincide with its principal the public debt stock have
export destinations. influenced the government in
Languages Luxembourg is a
planning new fiscal austerity
trilingual country, where
Manufacturing still plays an measures, a major reform of
French, German and a
important role in the Grand-Duchy’s healthcare, and a review of the
Franconian language called
economy. However, the growth in wage indexation system.
Luxembourgish are spoken.
the financial sector has balanced
European Union Thanks to the decline in industrial output. Looking forward, the resilience of
its central location, its financial Luxembourg attracts foreign direct Luxembourg’s economy will
regulatory system and its investment inflows thanks to its depend on cultivating its
financial sector, Luxembourg political stability and positive labor comparative advantage in high
is home to the European relations. The country has attracted value added niche activities.
Investment Bank, a financial financial institutions and many
institution of the European hedge funds. Luxembourg has the
Union, and to the European highest GDP per capita in the entire
Financial Stability Facility. EU and ranks 1st or 2nd, according
to the methodology used, in the
Fun Fact The country is the
entire world.
only remaining sovereign
Grand-Duchy in the world
Luxembourg’s financial sector was
where the Grand-Duke
less exposed than those of other
constitutionally still retains
EU economies, but it too was
executive powers, even
impacted by the financial crisis.
though they are now
delegated to the government.

2. Euro Challenge 2012
Exports Steel and other
Luxembourg’s Economy – Key Facts manufactured goods constitute
the core of Luxembourg’s
• Luxembourg registers one of the highest, if not the highest, GDP exports. The Grand-Duchy
per capita of the entire world year after year. Taxation is moderate relies heavily on exports for its
for households, and the welfare state is quite developed, making growth.
the country one of the places with the highest standards of living in
the world. Wages are indexed to various
factors, including inflation. For
• The World Economic Forum (WEF) Global Competitiveness Report this reason, wages
for 2011/2012 ranked Luxembourg 23rd out of 139 countries, and it automatically increase. A
gets excellent grades for its technological readiness and for market reform of such indexing is
efficiency. being considered by the
government and trade unions,
• The World Bank’s Doing Business Report ranked Luxembourg 50th in order to curb its impact on
out of 183 countries in 2012, down six spots from 2011. The decline the budget.
is mostly attributed to a 20-point slip in the “getting credit” category. Inflation Due to its reliance on
imports for energy production
• According to the European Commission's Spring 2011 forecast, and the rise in oil prices,
GDP grew only 1% in 2011, and is expected to average -0.2% over inflation has been climbing
the course of 2012. This comes after a contraction of 3.6% in 2009. above the euro area average,
Fiscal stimulus enacted during the crisis helped cushion the reaching 3.4% in 2011.
downturn, but Luxembourg returned to small surpluses in 2010. However, inflation is expected
Public debt is expected to rise to 23.8% of GDP in 2012. to decelerate to 2.3% in 2012.
• At the beginning of the crisis, the government approved a series of Unemployment Luxembourg
fiscal spending measures in order to prevent the economy from has one of the lowest
sliding into a deeper recession. Now, the government is considering unemployment rates in the EU.
taking action on such issues as health sector reform, longer-term Though the unemployment
pension reform and changes to the wage indexation system. has risen slowly to 6% since
Moreover, the government is trying to diversify Luxembourg’s the start of the crisis, it is still
economy by incentivizing more research and development with tax well below the European
cuts for such activities. average.
References Agriculture The Grand-
Duchy’s small but productive
• http://www.delicious.com/eurochallenge/Luxembourg
agricultural sector is highly
• http://ec.europa.eu/economy_finance/eu/countries/luxembourg_en. subsidized both from the
htm government and the European
• http://europa.eu/abc/european_countries/eu_members/luxembourg Union. Vineyards in the
Moselle Valley produce up to
• www.oecd.org/luxembourg 15 million liters of wine a year.
• http://www.imf.org/external/country/lux
• http://www.doingbusiness.org/ExploreEconomies/?economyid=115
• https://www.cia.gov/library/publications/the-world-
factbook/geos/lu.html