The country-specific recommendations are documents prepared by the European Commission for each Member State, which analyse its economic situation and provide tailored policy advice on measures that it should adopt over the coming 18 months. They cover the particular challenges that the Member State is facing in a broad range of areas: the state of public finances, reforms of pension systems, measures to create jobs and to fight unemployment, education and innovation challenges, efficiency of the public administration, competition etc. The final adoption of country-specific recommendations prepared by the Commission takes place at the highest level by national leaders in the European Council.
Luxembourg’s economic model is strongly based on financial services. The strength of its financial services' sector has allowed the country to create and sustain a generous welfare state without jeopardising public finances and enabled it to keep its public debt at a very low level. In 2013, the government budget recorded a small surplus on the back of a sizeable consolidation package and windfall revenues. However, public finances are expected to deteriorate slightly in 2014 and further from 2015 onwards, in the absence of correction measures. The 2014 in-depth review presented on 5 March 2014 by the Commission concluded that the macroeconomic challenges of Luxembourg have not been identified as imbalances.
Overall, Luxembourg has made only limited progress in addressing the 2013 country-specific recommendations. However, the reform agenda in the second semester of last year was heavily affected by the call for early general elections, which took place in October 2013.
While some progress has been made with the recently enacted pension reform, Luxembourg continues to face challenges in terms of the long-term sustainability of its public finances. Reduced VAT rates continue to be used widely. In spite of several measures, youth unemployment remains high. A wider reform of the education and vocational system would help to alleviate the situation of migrants and young people with low skills. The economy is heavily dependent on developments in the financial sector. Therefore, efforts to diversify the economy beyond the financial sector are worth being pursued in the search for alternative sources of growth. Ensuring that wages evolve in line with productivity would help to preserve Luxembourg's competitiveness from further losses. In addition, Luxembourg is expected to miss its greenhouse gas emissions' reduction target by a wide margin. See how Luxembourg compares with other EU Member States in key areas.
2014 European Commission's recommendations in brief
The Commission has issued five country-specific recommendations to Luxembourg to help it improve its economic performance. These are in the areas of: public finances and taxation; pensions and long-term care; competitiveness and wage-setting; labour market; greenhouse gas emissions.