Luxembourg: Economy

While Luxembourg is aptly described as the "Green Heart of Europe" in tourist literature, its pastoral land coexists with a highly industrialized, export-intensive, and high-tech services economy. Luxembourg enjoys a degree of economic prosperity almost unique among industrialized democracies.

In 1876, English metallurgist Sidney Thomas invented a refining process that led to the development of the steel industry in Luxembourg and the founding of the Arbed company in 1911. In 2001, Arbed merged with Aceralia and Usinor to form Arcelor, which was headquartered in Luxembourg. In 2005, Arcelor acquired Canada's largest steel manufacturer, Dofasco. In 2006, Arcelor merged with Mittal Steel to become ArcelorMittal, the largest steelmaker in the world. The company now produces 8% of the world's steel output. The iron and steel industry in Luxembourg comprises approximately 7% of the overall economy.

During the past few decades there has been a relative decline in the steel sector, offset by Luxembourg's emergence as a major financial services and technology center. As of September 2010 there were 149 banks in Luxembourg; banks employed 26,416 people as of 2009. Political stability, good communications, easy access to other European financial centers, and skilled multilingual staff have contributed to the growth of the financial sector. German banks represent the largest number, with Belgian, French, Italian, Japanese, Swedish, Swiss, U.K., and U.S. banks also having a significant presence in the country.

Government policies promote the development of Luxembourg as an audiovisual, communications, and high technology center. Radio-Television-Luxembourg (commonly known as RTL) is Europe's premier private radio and television broadcaster. The government-backed Luxembourg satellite company Societe Europeenne des Satellites (SES) was created in 1986 to install and operate a satellite telecommunications system for transmission of television programs throughout Europe. The first SES "ASTRA" satellite, a 16-channel RCA 4000, was launched by Ariane rocket in December 1988. SES presently operates over 40 satellites.

Over the past decade, Luxembourg has sought to diversify its services economy beyond the financial sector by promoting the high-tech/information technology and e-commerce sector. The government has made significant investments in infrastructure to increase broadband capacity and has become one of the leading countries in the number of high-speed Internet connections per capita. Multiple data centers were built to facilitate international network connectivity, and prices for commercial Internet usage have fallen. The Grand Duchy is seeking to position itself as a technology and e-commerce hub in Europe, with ultra-high bandwidth Internet infrastructure (fiber optic cable networks to all households) by 2013.

Luxembourg was the only EU country without a full university until 2003, when the University of Luxembourg was established as a national public university. The majority of college-age Luxembourgers still study outside of the Grand Duchy, usually in neighboring EU countries or the United Kingdom. However, the University of Luxembourg continues to expand and is attracting thousands of foreign students, mainly to its finance and law programs but also to science programs which are enhanced by a collaboration with the new Integrated BioBank of Luxembourg launched in 2008 and specializing in biomedical research focusing on cancer detection.

Luxembourg offers a favorable climate to foreign investment. Successive governments have effectively attracted new investment in medium, light, and high-tech industry. Incentives cover taxes, construction, and plant equipment. U.S. firms are among the most prominent foreign investors, producing tires (Goodyear), chemicals (DuPont), glass (Guardian Industries), and a wide range of industrial equipment. The Department of Commerce's Bureau of Economic Analysis reports that total U.S. direct investment in Luxembourg (on a historical cost basis) was nearly $153 billion at the end of 2008. Foreign direct investment (FDI) data for Luxembourg must be interpreted cautiously, however, because of Luxembourg's role in financial intermediation, particularly involving Luxembourg-based holding companies.

Labor relations have been peaceful since the 1930s. Most industrial workers are organized by unions linked to one of the major political parties. Representatives of business, unions, and government participate in the conduct of major labor negotiations, although this “tripartite” arrangement broke down in 2010 under the strain of negotiations during the economic crisis and union opposition to welfare cuts and the proposal to no longer index wage increases to inflation.

Unemployment in 2009 was 7.1%, up from 5.8% in 2008. Luxembourg's small but productive agricultural sector employs 1% of the total labor force, a typical figure for a highly developed country. Most farms produce milk, meat, and foraging crops. Timber is another important sector. Luxembourg, being a part of the Moselle region, produces outstanding white wines and also Pinot Noir, a light red wine, competitive in quality with French wines.

Due to its powerful financial services sector, Luxembourg maintains a favorable current account balance, with a €2.13 billion surplus in 2009 ($3.02 billion). Government finances deteriorated somewhat, with a 2009 budget deficit of €277.7 million ($394.3 million) versus a surplus of €1.13 billion in 2008 ($1.61 billion).

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