European Union

In his speech on the state of the nation in 2007, Jean-Claude Juncker stated that "only the European Union gives Luxembourg the means to exercise influence on events abroad; it is important for Luxembourg to influence the development of Europe".^[4] The European community remained the preferred field of action for Luxembourgish diplomacy.^[4] Several times in the past, the Grand Duchy's political representatives had been appointed to posts of high responsibility in the Union.^[4] On 10 September 2004, the Prime Minister and Minister for Finances, Jean-Claude Juncker, was elected by his European colleagues as president of the Eurogroup, the informal group for finance ministers of the members of the Eurozone.^[4] His mandate was renewed in 2006 and in 2008, for two years each time.^[4] The Eurogroup, although an informal organisation, played an important role in coordinating the budget policies of the Eurozone member states.^[4] The function of the Eurogroup's presidency allowed Juncker to regularly join in meetings of the G7 and of the International Monetary Fund to assure a unified representation of the Eurozone within international bodies.^[4]

The Luxembourgish presidency of the Council of the European Union in the first half of 2005 constituted a highlight in the area of foreign policy.^[4] Luxembourg became during this time the host of numerous ministerial meetings and preparatory sessions.^[4] The most important advances of the Luxembourgish Presidency were the relaunch of the Lisbon Strategy and the reform of the Stability and Growth Pact.^[4] The Lisbon Strategy formulated in 2000 aimed to make the European Union the most competitive and dynamic knowledge economy of the world by 2010, which would at the same time be able to respond to the social and environmental expectations of its citizens.^[4] In 2005, it became possible to undertake a reorientation.^[4] In order to make the governments more responsible to their European partners, each member state had to submit a national programme of reform to the European Commission for the years 2005–2008.^[4]

The Luxembourgish government advocated an integrated approach aiming not only at competitiveness, but also at "an increased social cohesion and a more harmoniously balanced environment".^[5] A second large project that the Luxembourgish presidency managed to conclude with success was the reform of the Stability and Growth Pact.^[5] Adopted in 1996, this formed the cornerstone of the Economic and Monetary Union.^[5] Imposing rigorous budgetary discipline, it was to guarantee the stability of the Euro.^[5] The challenge consisted of finding a formula to allow a more relaxed application of the Pact, which would take economic realities into account without at the same time allowing budgetary laissez-faire.^[5] The requirement to keep the deficit under 3% and public debt under 60% of GDP was maintained.^[5] The reform which came into force in late July 2005 allowed the member states to escape a too restrictive deficit policy in the case of a recession and after examining a certain number of "pertinent factors".^[5]

Promotion abroad

Apart from European affairs, an important part of foreign policy consisted of the promotion of Luxembourgish industries and the financial centre abroad.^[6] The Luxembourgish government increased the number of economic missions especially in Asian countries (China, India, Japan, South Korea, Vietnam, United Arab Emirates, Jordan, Saudi Arabia, Dubai, Turkey, Kuwait, Qatar), but also in North and South America (United States, Canada, Mexico, Peru) and some European countries (Russia, Sweden, Finland).^[6] The goal of these visits was to make itself known in these regions with high potential for growth and to support Luxembourgish businesses in their search for new markets.^[6] In order to encourage efforts to internationalise the Luxembourgish economy, the government created in 2007 two promotion agencies: Luxembourg for Business and Luxembourg for Finance.^[6]

OECD Grey list

After the 2007–2008 financial crisis, international pressure on countries which continued to practise banking secrecy grew.^[6] Luxembourg, like Switzerland or Austria, was also blamed.^[6] The Grand Duchy found itself on a "grey list" established by the Organisation for Economic Co-operation and Development (OECD).^[6] The Luxembourgish government protested against being likened to a tax haven and undertook efforts to counter the image of the financial centre.^[6] On 13 March 2009, Luxembourg decided to conform to the standards of the OECD and committed itself to the exchange of information on demand in the framework of bilateral accords with third parties.^[6] In several months, the Luxembourgish government signed twenty agreements of non-double taxation which implemented the rules of the OECD.^[6] On 8 July 2009, Luxembourg was the first financial centre to be removed from the "grey list" of the OECD.^[6]

Economy

Under the previous government, between 2001 and 2004, Luxembourg had experienced a slowdown in its economy. The year 2005 again marked a return to growth: the GDP reached a growth rate of 4% in 2005 and 6,2% in 2006. However, the unemployment rate remained fairly high, between 4 and 5%, despite the creation of 21,000 new jobs in 2005 and 2006. Moreover, Luxembourg experienced higher inflation than most other Eurozone members, which threatened a loss of Luxembourg's competitiveness compared with its principal trading partners, even though Luxembourg in 2007 was still ranked the 5th most competitive economy in the EU. In addition, despite the economic bright spell, the Luxembourgish government remained restrained in its forecasts. It endeavoured to consolidate the public finances and to slow the increase in expenditure. Indeed, while until 2001, the budget had regularly showed a surplus, in 2005 the deficit reached 1,9% of the GDP.

The government proclaimed its intention to return to a balanced budget, especially as tax receipts depended largely on the economic situation, which itself depended on the performance of the financial sector.

Financial sector

The financial centre remained the engine of growth. However, its legal framework was subject to adjustments. On 1 January 2006, a law came into force introducing a withholding tax in full discharge on revenue from savings. That same year, the European Commission decided that holding companies that were exempt on the basis of the law of 1929 were in receipt of a state aid that was incompatible with the common market. The Luxembourgish government agreed to repeal this tax regime in return for a four-year transition period, The financial crisis of 2007-2008 also had repercussions in Luxembourg. It compelled the Luxembourgish state, like other European states, to intervene to rescue its banks and support the economy. The funds awarded in 2008 to the financial sector represented 7,64% of GDP, including 2,5 billion Euros in acquisitions of shares and 300 million Euros of guarantees. In March 2009, the government formulated a plan to support the economy, in order to combat the effects of the crisis.

Competitivity

The government had not however awaited the crisis to begin a reflection on the structural strengths and weaknesses of Luxembourg. Commissioned by the previous coalition, professor Lionel Fontagné of the University of Paris I presented a report in November 2004 on Luxembourg's competitivity, entitled A crack in the steel (Une paille dans l’acier). The conclusions of this analysis fed in to the work of the Tripartite Coordination Committee which included the government and the social partners. The Tripartite managed to agree on the structural determinants of competitivity, namely education and innovation. Public and private efforts would increase spending on research and development. A national action plan was to allow the country to reach the Lisbon goals. The government increased its commitments to finance the activities of the University of Luxembourg, set up in 2003. In 2006, a multi-year contract was signed between the State and the university, providing the latter with long-term planning security.

Pay, pensions and social security

Within the Tripartite, opinions continued to differ on pensions funding, the automatic indexation of pay (the index) and the minimum wage. Nevertheless, the index, combined with the sudden rise in oil prices, was seen as the main cause of inflation. The social partners agreed on an adaptation of the index. Discussions within the Tripartite prepared the way for another important structural reform: the introduction of a single status for employees, which put an end to the outdated distinction between workers and private employees. The harmonisation of statuses made it possible to merge the health insurance and pension funds of the private sector and led to the creation of one single professional chamber and one employment tribunal for the sector. From 1 January 2009, the National Health Fund (Caisse nationale de santé) replaced the old social security bodies that were based on socio-professional distinctions.

Education

The debates on competitivity brought up the importance of education again. The government encouraged initiatives which went beyond the practices of traditional teaching and which represented innovative projects: the "Neie Lycée", a pilot school based on cooperation and themed projects; "Eis Schoul", a research primary school based on inclusive teaching methods; the "École de la 2e chance" (School of the Second Chance) for school-leavers; and a cross-border school, the Deutsch-Luxemburgisches Schengen-Lyzeum Perl. In 2007, the government submitted three bills which would replace the education law of 1912. Learning was now defined in terms of competences to be acquired, and the age of mandatory schooling was raised to the age of 16.

A significant social measure was also the introduction from 1 March 2009 of a system of vouchers which gave the right to a range of educative extracurricular services (daycare centres, crèches, etc.). This was a first step towards at least partly free provision of these services

Infrastructure

The modernisation and development of infrastructure continued to be a priority for government policy. The level of public investment remained high, independent of economic fluctuations. Several large projects, started under previous governments, were completed: the Grande-Duchesse Joséphine-Charlotte Concert Hall (Philharmonie) and the "Centre de musiques amplifiées" (Rockhal) in 2005, the Grand Duke Jean Museum of Modern Art (MUDAM) in 2006, a new terminal for Luxembourg Findel Airport and the Judiciary City in 2008. In the area of communications and transport, there were also several promising achievements. From March 2007, the Luxembourg-Perpignan rolling road offered an alternative to road transport. From June 2007, the LGV Est linked Luxembourg to Paris, reducing travel time by a third. The Luxembourgish State had participated in the funding of this high-speed line.

In terms of land-use planning, the masterplan IVL, adopted in 2003, determined the fundamental direction. It was gradually complemented by regional masterplans and sectoral masterplans. The government was convinced of the need for adopting a cross-border vision of the dynamics which animated the Luxembourgish territory. It chose land-use planning as the main theme of its presidency of the Greater Region in 2008 and 2009. The aim was to develop, in tandem with the entities in the Greater Region, an integrated strategy of spatial development in the areas of transport, business parks and housing. In the longer term, the government's aim was the creation of a cross-border decentralised metropolitan region.

The search for a greater internal cohesion was also at the heart of the organisation "Luxembourg et Grande Région, capitale européenne de la culture 2007" (Luxembourg and the Greater Region, European Capital of Culture 2007). By encouraging projects of long-term cross-border cooperation, this cultural event was able to strengthen the common feeling of belonging among the 11 million inhabitants of the Greater Region.

Social policy

In the area of social policy, several large-scale reforms were carried out. From 1 January 2009, a new law on nationality came into force. Fostering the integration of foreign residents in Luxembourg, it made it possible to adopt dual nationality, while raising the period of obligatory residency from 5 to 7 years. The Luxembourgish language was recognised as an essential factor of integration. Applicants had to pass a language exam and attend civic education classes.

The initiative for another important social reform came from two Deputies, Lydie Err (LSAP) and Jean Huss (The Greens), who had already presented a bill on the right to die with dignity in 2002. In 2006, the government drafted a bill on palliative care and support for people at the end of their life. it decided to have it discussed along with the Err/Huss bill. The two bills were passed by the Chamber of Deputies in 2008, in the course of two votes. Notably, the parliament avoided the traditional divide between government majority and opposition by exempting the Deputies from voting discipline. However, the Grand Duke indicated to the Prime Minister that he was not able to "sanction" any law on the right to die with dignity, invoking a conflict of conscience. In order to avoid an institutional crisis, while leaving the head of state his right to freedom of opinion and of conscience, the country's political authorities undertook a revision of the Constitution. From now on, the Grand Duke promulgated laws in his capacity as head of the executive, but no longer had to sanction them as part of the legislative branch. The law on euthanasia and assisted suicide was finally promulgated on 16 March 2009.