Comment faire face à la crise économique et financière : les réponses du Luxembourg et de l’Europe comparées aux réactions américaines

Comment faire face à la crise économique et financière : les réponses du Luxembourg et de l’Europe comparées aux réactions américaines

Comment faire face à la crise économique et financière : les réponses du Luxembourg et de l’Europe comparées aux réactions américaines

XVth Spring Meeting of Young Economists – 2010 Luxembourg

Vendredi 16 avril 2010
Abbaye de Neumünster, salle José Ensch (Luxembourg-Grund)
Entrée libre
En anglais


La table ronde, autour d’une analyse comparée des réponses du Luxembourg, de l’Europe et des Etats-Unis à la crise économique et financière, sera modérée par Mario Hirsch, directeur de l’IPW, et Carlo Thelen, Chief Economist, Chambre de Commerce, et réunira :
– Luss Thiel, député et ancien directeur de l’Association des Banques et Banquiers Luxembourg (ABBL)
– Jean-Pierre Schoder, Head of Economic and Financial Research, Banque Centrale du Luxembourg
– Serge Allegrezza, directeur du Service central de la statistique et des études économiques (STATEC)
– Galina Hale, Senior Economist, Federal Reserve Bank of San Francisco

Programme SMYE 2010

Compte rendu

Coping with the financial and economic crisis: Responses in Luxembourg and in Europe as compared to US reactions

Lucien Thiel, MP and former Director of the Bankers’ Association ABBL

Luxembourg actually not only suffers from the general financial crisis but also from its own structural problems.
It had an exceptional economic performance over the last 30 years that guaranteed its inhabitants one of the highest living standards in the world. But the reserves accumulated by the government alleviated the shock of the economic crisis only to a certain extend. Due to decreasing tax revenues and increasing expenditures, the Grand Duchy is now facing a public debt that is going to jump up to 20% of the GDP in 2010. In order to avoid uncontrolled indebtedness a cap has been set at 30% of the GDP, aiming at a balanced budget by 2014. To reach these goals, the government at the moment deliberates a first package of measures with the Tripartite and on an international level supports the coordinated exit strategy, which schedules the end of anti-cyclical policy for 2011.

The Luxembourgish welfare is based on an economic growth rate that used to be twice as high as the international standard of 2% of the GDP, to which it is going to drop down pursuant to experts. The Grand Duchy is by far too dependent on its financial sector that represents 25% of the GDP, compared to 10% in other Financial Centers like the United Kingdom or Switzerland. To overcome the “crisis behind the crisis”, in addition to financial consolidation and a reform of the pension system, Luxembourg therefore aims at a diversification of its national economy and a higher qualification of its manpower, in the first place via its recently created university. The prestige of international key players and their subsidiaries based in Luxembourg is certainly a trump card, but its future success will depend on the willingness to overcome a tendency of safety thinking and protection of acquired benefits.

Jean-Pierre Schoder, Head of economic and financial research at the Luxmbourg Central Bank

The GDP of the Grand Duchy has significantly dropped during the first and the second quarter of 2009 and only started to rise again in the third quarter. Using projections, a lack of growth of 15% of the GDP has been calculated for the end of 2011. Accordingly, the employment creation that used to be close to 6% in the first quarter of 2008 is now close to zero. The relative increase of unemployment was higher than the European average and would have been even higher taking into account former commuters that are recorded in their home countries, which clearly shows that Luxembourg is not only suffering from a cyclical, but also of a structural crisis which leads to a reduction of potential growth. The crisis has brought forward the break-even point around 2033 when the social security system will run deficits. In terms of competitiveness, Luxembourg accumulates 2 disadvantages which consist in higher labour costs – mainly due to full indexation of wages and salaries – and lower productivity compared to the European average.

To overcome the crisis, the focus should be on reducing expenditures, which in Luxembourg are twice as high per capita as the European average. One of the most promising measures would therefore be to freeze the pensions and the salaries of


Serge Allegrezza, Director of the Government Statistics Office STATEC

The role of economists consists in gathering and producing valuable data according to internationally agreed standards, in its interpretation and in presenting it to decision makers. With simulations, forecasts and breakdowns, these experts help drafting and designing economic policy by making understand the actual situation and the potential outcome of decisions that are under discussion. Being independent, economists need to take into account not only special groups but all economic actors, aiming at a general equilibrium or social optimum. Due to certain constraints, the decisions actually taken are not always rational, which can be shown by putting them back into models.

Although in theory a cooperation model is preferable to the one of competition, it is hard to put it into practice, as there are often asymmetric information and other obstacles to collective action. In the actual situation, many voters occupying well secured public functions are not aware of the extent of the crisis which makes it difficult to campaign for appropriate drastic action.

An anti-cyclical budgetary policy needs important multipliers to be successful, which a small country like Luxembourg does not dispose of; a lot of money has therefore been spent inefficiently. In the future the potential growth of Luxembourg’s economie might drop from 6% to half of it, which would imply a tremendous change in the freedom of action.

Due to special legislative arrangements in the Grand Duchy, wages are automatically linked to inflation. It is difficult to isolate the effects of automatic wage indexation and to determine to what extend it drives inflation, but the impact does not seem to be big. However, it is an obstacle for finding a new system to monitor the evolution of wages and unitary labour costs that is urgently needed.

Galina Hale, Senior Economist of the Reserve Bank of San Francisco

In contrast to small countries like Luxembourg, the US did not suffer from structural problems throughout the crisis. In fact, labour productivity even went up and some estimates of potential growth are higher than before the crisis. Nevertheless, the return to a normal labour market situation is forecasted no earlier than 2016, leading to an output gap. Inflation is forecasted to stay at a low level of around 1% which gives room for monetary policy to remain at a quite expansionary stance with extraordinarily low interest rates.

Like most of the countries the US had enormous expenditures for fiscal stimuli and bale-out measures for the banking system. Due to a faster growth and a “flight to quality” during the crisis leading to treasury rates close to zero, the fiscal burdens and the costs of the newly passed health reform still represent major problems, but the situation is probably not as extreme as in Europe. What is more worrying from the US point of view is its trade deficit that restarted growing when global trade recoverd. During the crisis a lot of unusual monetary policy decisions have been taken. The challenge the FED is facing in the future is to unwind these measures without rocking the markets too much. Additionally, the urgently needed bank regulatory reform is actually discussed in Congress.

The general feeling of already having overcome the crisis bears the risk of releasing policy makers from the pressure to accomplish necessary reforms.


Organisé par l’IPW, le CEPS/INSTEAD et l’Université du Luxembourg

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