Date
22 October 2017
Luxembourg is ranked No.1 in terms of GDP per capita among EU countries. Photo: visitcapitalcity.com
Luxembourg is ranked No.1 in terms of GDP per capita among EU countries. Photo: visitcapitalcity.com

How Luxembourg became a European economic miracle

During the recent summit of the North Atlantic Treaty Organization (NATO), the prime minister of Luxembourg, Xavier Bettel, and his “first lady” who came along with him to the event, became the focus of media attention.

The reason was not because of what he said during the meeting, but rather, because of the fact that he is the first ever gay leader of any member state of the European Union (EU) who has come out of the closet. And his “first lady”, who has been married to him since May 2015, is actually a man.

By far Bettel, is the second in the world who has come out of the closet after Johanna Siguroardottir, the former prime minister of Iceland.

And last year, Luxembourg became the latest country in the EU to officially legalize same-sex marriage. According to a local poll conducted at the time, 75 percent of Luxembourgers were in favor of the idea.

Apart from having a gay leader, Luxembourg, a tiny landlocked country on the European continent with a population of just 600,000, is also widely known for its economic miracle, and has become a popular subject for case study among economists, sociologists and even international relations experts over the years.

Before the 1960s, Luxembourg was a traditional industrial power that relied heavily on the steel industry as its economic growth engine. However, since then the Luxembourg government has put a lot of effort into promoting a more diversified and innovative national economy.

Today Luxembourg has not only become a major banking and financial center in the eurozone but also a tech hub in Europe.

Luxembourg is currently ranked No. 1 in terms of GDP per capita among all EU countries.

However, Luxembourg’s path toward becoming a major financial center in the eurozone hasn’t been always smooth and easy. In fact, it had quite a bumpy ride in the wake of the global financial tsunami in 2008.

In 2009 Luxembourg, received a bad press all over the world over the allegedly serious loopholes in its laws that regulated the financial industry. Worse, its government was accused of turning a blind eye to these loopholes and allowing the country to become a safe haven for tax dodging tycoons or even dictators.

For example, there were media reports that the late Kim Jong-il, former paramount leader of North Korea, had been hiding a great deal of assets in Luxembourg banks during his lifetime.

At one point, Luxembourg’s allegedly poor regulation of its banks raised concerns among the international community, so much so the G20 put the country on a “gray list” and warned of further action unless it took remedial measures massively and immediately.

An the across-the-board regulatory reform carried out by the Luxembourg authorities since 2009 has finally paid off. Recently, the International Monetary Fund (IMF) has officially recognized Luxembourg’s success in reforming its banking regulation.

Despite its small size and tiny population, Luxembourg is indeed quite an influential player in the EU. For example, the country has six seats in the European Parliament, not to mention that Jean-Claude Juncker, the incumbent president of the European Commission, the chief governing body of the EU, is also a Luxembourger.

Luxembourg’s EU membership is in fact its economic lifeline, because as a tiny country with a very small population, its banks and businesses depend almost entirely on foreign clients and customers, particularly European customers.

As such, remaining in the EU is absolutely crucial to Luxembourg’s continued prosperity since it allows the country to have free access to the vast single European market

On the other hand, Luxembourg’s current status as a peaceful and neutral country in Europe didn’t come easy.

Throughout the 19th century, the country was heavily fortified against its powerful and aggressive neighbors such as France, Prussia, the Austrian Empire, the Netherlands and Belgium, all of which were eyeing Luxembourg’s territory.

It wasn’t until 1890 that major European powers finally reached a consensus and officially recognized Luxembourg’s status as a sovereign and neutral state.

In a nutshell, the key to the success of Luxembourg, and perhaps all other tiny sovereign states, is being able to skillfully navigate themselves among great powers and join international organizations as well as free trade zones in order to have sustainable access to foreign markets.

In fact, this success formula doesn’t only apply to small sovereign states but also to small autonomous regions such as ours.

This article appeared in the Hong Kong Economic Journal on June 23

Translation by Alan Lee

[Chinese version 中文版]

– Contact us at [email protected]

RT/RA

Associate professor and director of Global Studies Programme, Faculty of Social Science, at the Chinese University of Hong Kong; Lead Writer (Global) at the Hong Kong Economic Journal

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