Europaudvalget 2025
KOM (2025) 0216
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EUROPEAN
COMMISSION
Brussels, 4.6.2025
COM(2025) 216 final
Recommendation for a
COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Luxembourg
{SWD(2025) 216 final}
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Recommendation for a
COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Luxembourg
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular
Article 121(2) and Article 148(4) thereof,
Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council
of 29 April 2024 on the effective coordination of economic policies and on multilateral
budgetary surveillance and repealing Council Regulation (EC) No 1466/97
1
, and in particular
Article 3(3) thereof,
Having regard to the recommendation of the European Commission,
Having regard to the resolutions of the European Parliament,
Having regard to the conclusions of the European Council,
Having regard to the opinion of the Employment Committee,
Having regard to the opinion of the Economic and Financial Committee,
Having regard to the opinion of the Social Protection Committee,
Having regard to the opinion of the Economic Policy Committee,
Whereas:
General considerations
(1)
Regulation (EU) 2024/1263, which entered into force on 30 April 2024, specifies the
objectives of the economic governance framework, which aims at promoting sound
and sustainable public finances and sustainable and inclusive growth and resilience
through reforms and investments, and preventing excessive government deficits. The
Regulation stipulates that the Council and the Commission conduct multilateral
surveillance in the context of the European Semester in accordance with the objectives
and requirements set out in the TFEU. The European Semester includes, in particular,
the formulation, and the surveillance of the implementation of country-specific
recommendations. The Regulation also promotes national ownership of fiscal policy
and emphasises its medium-term focus, combined with more effective and coherent
enforcement. Each Member State must submit to the Council and the Commission a
national medium-term fiscal-structural plan, containing its fiscal, reform and
investment commitments, over 4 or 5 years, depending on the length of the national
legislative term. The net expenditure
2
path in these plans has to comply with the
OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj.
Net expenditure as defined in Article 2, point (2), of Regulation (EU) 2024/1263: ‘net expenditure’
means government expenditure net of (i) interest expenditure; (ii) discretionary revenue measures; (iii)
expenditure on programmes of the Union fully matched by revenue from Union funds; (iv) national
expenditure on co-financing of programmes funded by the Union; (v) cyclical elements of
unemployment benefit expenditure; and (vi) one-offs and other temporary measures.
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Regulation’s requirements, including the requirements to put or keep general
government debt on a plausibly downward path by the end of the adjustment period, or
for it to remain at prudent levels below 60% of gross domestic product (GDP), and to
bring and/or maintain the general government deficit below the 3%-of-GDP Treaty
reference value over the medium term. Where a Member State commits to a relevant
set of reforms and investments in accordance with the criteria set out in the
Regulation, the adjustment period may be extended by up to three years.
(2)
Regulation (EU) 2021/241 of the European Parliament and of the Council
3
, which
established the Recovery and Resilience Facility (the ‘RRF’), entered into force on
19 February 2021. The RRF provides financial support to Member States for
implementing reforms and investments, delivering a fiscal impulse financed by the
Union. In line with the priorities of the European Semester for economic policy
coordination, the RRF fosters economic and social recovery while driving sustainable
reforms and investments, in particular promoting the green and digital transitions and
making Member States’ economies more resilient. It also helps strengthen public
finances and boost growth and job creation in the medium and long term, improve
territorial cohesion within the Union and support the continued implementation of the
European Pillar of Social Rights.
Regulation (EU) 2023/435 of the European Parliament and of the Council
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(the
‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to phase
out the Union’s dependence on Russian fossil-fuel imports. This helps achieve energy
security and diversify the Union’s energy supply, while increasing the uptake of
renewables, energy storage capacities and energy efficiency. Luxembourg added a
new REPowerEU chapter to its national recovery and resilience plan in order to
finance key reforms and investments that will help achieve the REPowerEU
objectives.
On 30 April 2021, Luxembourg submitted its national recovery and resilience plan to
the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241.
Pursuant to Article 19 of that Regulation, the Commission assessed the relevance,
effectiveness, efficiency and coherence of the recovery and resilience plan, in
accordance with the assessment guidelines set out in Annex V. On 6 July 2021, the
Council adopted its Implementing Decision approving the assessment of the recovery
and resilience plan for Luxembourg
5
, which was amended under Article 18(2) on 13
September 2024 to update the maximum financial contribution for non-repayable
financial support, as well as to include the REPowerEU chapter
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. The release of
instalments is conditional on the adoption of a decision by the Commission, in
accordance with Article 24(5), stating that Luxembourg has satisfactorily achieved the
Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17, ELI:
http://data.europa.eu/eli/reg/2021/241/oj).
Regulation (EU) 2023/435 of the European Parliament and of the Council of 27 February 2023
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans
and amending Regulations (EU) No 1303/2013, (EU) 2021/1060 and (EU) 2021/1755, and Directive
2003/87/EC (OJ L 63, 28.2.2023, p. 1, ELI:
http://data.europa.eu/eli/reg/2023/435/oj).
Council Implementing Decision of 6 July 2021 on the approval of the assessment of the recovery and
resilience plan for Luxembourg (10155/2021).
Council Implementing Decision of 13 September 2024 amending the Implementing Decision of 6 July
2021 on the approval of the assessment of the recovery and resilience plan for Luxembourg
(10155/2021).
(3)
(4)
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relevant milestones and targets set out in the Council Implementing Decision.
Satisfactory achievement requires that the achievement of preceding milestones and
targets for the same reform or investment has not been reversed.
(5)
On 21 January 2025, the Council, upon the recommendation of the Commission,
adopted a recommendation endorsing the national medium-term fiscal-structural plan
of Luxembourg
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. The plan was submitted in accordance with Article 11 and
Article 36(1), point (a), of Regulation (EU) 2024/1263, covers the period from 2025
until 2029 and sets a budgetary constraint in the form of a maximum net expenditure
growth rate over four years.
On 26 November 2024, the Commission adopted an opinion on the 2025 draft
budgetary plan of Luxembourg. On the same date, on the basis of Regulation (EU) No
1176/2011, the Commission adopted the 2025 Alert Mechanism Report, in which it
did not identify Luxembourg as one of the Member States for which an in-depth
review would be needed. The Commission also adopted a recommendation for a
Council recommendation on the economic policy of the euro area and a proposal for
the 2025 Joint Employment Report, which analyses the implementation of the
Employment Guidelines and the principles of the European Pillar of Social Rights.
The Council adopted the Recommendation on the economic policy of the euro area
8
on
13 May 2025 and the Joint Employment Report on 10 March 2025.
On 29 January 2025, the Commission published the Competitiveness Compass, a
strategic framework that aims to boost the EU’s global competitiveness over the next
five years. It identifies the three transformative imperatives of sustainable economic
growth: (i) innovation; (ii) decarbonisation and competitiveness; and (iii) security. To
close the innovation gap, the EU aims to foster industrial innovation, support the
growth of start-ups through initiatives like the EU Start-up and Scale-up Strategy, and
promote the adoption of advanced technologies like artificial intelligence and quantum
computing. In pursuit of a greener economy, the Commission has outlined a
comprehensive Affordable Energy Action Plan and a Clean Industrial Deal, ensuring
that the shift to clean energy remains cost-effective, competitiveness-friendly,
particularly for energy-intensive sectors, and is a driver for growth. To reduce
excessive dependencies and increase security, the Union is committed to strengthening
global trade partnerships, diversifying supply chains and securing access to critical
raw materials and clean energy sources. These priorities are underpinned by horizontal
enablers, namely regulatory simplification, deepening of the single market, financing
competitiveness and a Savings and Investments Union, promotion of skills and quality
jobs, and better coordination of EU policies. The Competitiveness Compass is aligned
with the European Semester, ensuring that Member States’ economic policies are
consistent with the Commission’s strategic objectives, creating a unified approach to
economic governance that fosters sustainable growth, innovation and resilience across
the Union.
In 2025, the European Semester for economic policy coordination continues to
develop alongside the implementation of the RRF. The full implementation of the
recovery and resilience plans remains essential for delivering on the policy priorities
Council Recommendation of 21 January 2025 endorsing the medium-term fiscal-structural plan of
Luxembourg, OJ C/2025/650, 10.2.2025.
Council Recommendation of 13 May 2025 on the economic policy of the euro area (OJ C,
C/2025/2782, 22.5.2025, ELI:
http:// data.europa.eu/eli/C/2025/2782/oj).
(6)
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under the European Semester, as the plans help effectively address all or a significant
subset of challenges identified in the relevant country-specific recommendations
issued in recent years. These country-specific recommendations remain equally
relevant for the assessment of amended recovery and resilience plans in accordance
with Article 21 of Regulation (EU) 2021/241.
(9)
The 2025 country-specific recommendations cover the key economic policy
challenges that are not sufficiently addressed by measures included in the recovery and
resilience plans, taking into account the relevant challenges identified in the 2019-
2024 country-specific recommendations.
On 4 June 2025, the Commission published the 2025 country report for Luxembourg.
It assessed Luxembourg’s progress in addressing the relevant country-specific
recommendations and took stock of Luxembourg’s implementation of the recovery
and resilience plan. Based on this analysis, the country report identified the most
pressing challenges Luxembourg is facing. It also assessed Luxembourg’s progress in
implementing the European Pillar of Social Rights and in achieving the Union
headline targets on employment, skills and poverty reduction, as well as progress in
achieving the United Nations Sustainable Development Goals.
Assessment of the Annual Progress Report
(11)
On 21 January 2025 the Council recommended the following maximum growth rates
of net expenditure for Luxembourg: 5.8% in 2025, 4.7% in 2026, 3.8% in 2027, 5.4%
in 2028 and 4.7% in 2029, which correspond to the maximum cumulative growth rates
calculated by reference to 2023 of 14.2% in 2025, 19.6% in 2026, 24.1% in 2027,
30.8% in 2028 and 36.9% in 2029. On 25 April 2025 Luxembourg submitted its
Annual Progress Report
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, on adherence to the recommended maximum growth rates of
net expenditure and the implementation of reforms and investments responding to the
main challenges identified in the European Semester country-specific
recommendations. The Annual Progress Report also reflects Luxembourg’s biannual
reporting on the progress made in achieving its recovery and resilience plan in
accordance with Article 27 of Regulation (EU) 2021/241.
Russia’s war of aggression against Ukraine and its repercussions constitute an
existential challenge for the European Union. The Commission recommended to
activate the national escape clause (NEC) of the Stability and Growth Pact in a
coordinated manner to support the EU efforts to achieve a rapid and significant
increase in defence spending and this proposal was welcomed by the European
Council of 6 March 2025.
Based on data validated by Eurostat
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, Luxembourg’s general government balance
turned from a deficit of 0.8% of GDP in 2023 to a surplus of 1.0% in 2024, while the
general government debt rose from 25.0% of GDP at the end of 2023 to 26.3% at the
end of 2024. According to the Commission’s calculations, these developments
correspond to a net expenditure growth rate of 6.2% in 2024. In the Annual Progress
Report, Luxembourg estimates the net expenditure growth in 2024 at 6.7%. The
Commission estimates that the net expenditure growth was lower than in the Annual
Progress Report. The difference between the Commission's calculations of the net
The 2025 Annual Progress Reports are available on:
https://economy-finance.ec.europa.eu/economic-
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en
Eurostat-Euro Indicators, 22.4.2025.
(10)
(12)
(13)
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expenditure growth and the estimates of national authorities is due to assumptions of
lower expenditure funded by transfers from the EU in the national projections. Based
on the Commission’s estimates, the fiscal stance
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, which includes both nationally and
EU financed expenditure, was broadly neutral in 2024.
(14)
According to the Annual Progress Report, the macroeconomic scenario underpinning
the budgetary projections by Luxembourg expects real GDP growth at 2.5% in 2025,
while HICP inflation is projected at 2.0% in 2025. The Commission Spring 2025
Forecast projects real GDP to grow by 1.7% in 2025 and 2.0% in 2026, and HICP
inflation to stand at 2.1% in 2025 and 1.8% in 2026.
In the Annual Progress Report, the general government surplus is expected to turn to a
deficit of 0.6% of GDP in 2025, while the general government debt-to-GDP ratio is set
to increase to 26.4% by the end of 2025. These developments correspond to net
expenditure growth of 7.1% in 2025. The Commission Spring 2025 Forecast projects a
general government deficit of 0.4% of GDP in 2025. The return to a deficit in 2025
mainly reflects lower windfall revenues from corporate income tax and the impact of
the expansionary fiscal stance. According to the Commission’s calculations, these
developments correspond to net expenditure growth of 6.8% in 2025. Based on the
Commission’s estimates, the fiscal stance, which includes both nationally and EU
financed expenditure, is projected to be expansionary, by 1.2% of GDP, in 2025. The
general government debt-to-GDP ratio is set to decrease to 25.7% by the end of 2025.
The decrease of the debt-to-GDP ratio in 2025 is mainly due to the snow-ball effect as
GDP growth has been higher than interest payment.
General government expenditure amounting to 0.1% of GDP is expected to be
financed by non-repayable support (“grants”) from the Recovery and Resilience
Facility in 2025, compared to 0.1% of GDP in 2024, according to the Commission
Spring 2025 Forecast. Expenditure financed by Recovery and Resilience Facility non-
repayable support enables high-quality investment and productivity-enhancing reforms
without a direct impact on the general government balance and debt of Luxembourg.
General government defence expenditure in Luxembourg remained stable at 0.5% of
GDP between 2021 and 2023
12
. According to the Commission Spring 2025 Forecast,
expenditure on defence is projected at 0.6% of GDP in 2024 and 0.7% of GDP in
2025. This corresponds to an increase of 0.3 percentage points of GDP compared to
2021.
According to the Commission Spring 2025 Forecast, net expenditure in Luxembourg
is projected to grow by 6.8% in 2025 and 13.5% cumulatively in 2024 and 2025.
Based on the Commission Spring 2025 Forecast, the net expenditure growth of
Luxembourg in 2025 is projected to be above the recommended maximum growth
rate, corresponding to a deviation
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of 0.5% of GDP in annual terms. The projected
deviation exceeds the 0.3% of GDP threshold for the annual deviation. Considering
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of
the general government. It aims to assess the economic impulse stemming from fiscal policies, both
those that are nationally financed and those that are financed by the EU budget. The fiscal stance is
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary
expenditure net of discretionary revenue measures and including expenditure financed by non-repayable
support (grants) from the Recovery and Resilience Facility and other Union funds.
Eurostat, government expenditure by classification of functions of government (COFOG).
From 2026 these figures will appear in the control account that is established in Article 22 of the
Regulation (EU) 2024/1263.
(15)
(16)
(17)
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2024 and 2025 together, the cumulative growth rate of net expenditure is projected to
be below the recommended maximum growth rate. Overall, this means there is a risk
of deviation from the recommended maximum net expenditure growth, when outturn
data for 2025 will be available next spring.
(19)
Moreover, the Council recommended that Luxembourg wind down the emergency
energy support measures before the 2024/2025 heating season. According to the
Commission Spring 2025 Forecast, while the net budgetary cost
14
of emergency
energy support measures is estimated at 0.4% of GDP in 2024, it is projected to
decrease to 0.1% in 2025. The emergency energy support measures were only partly
wound down before the 2024/2025 heating season. This is not fully in line with what
was recommended by the Council.
The Annual Progress Report does not include budgetary projections beyond 2025.
Based on policy measures known at the cut-off date of the forecast, the Commission
Spring 2025 Forecast projects a general government deficit of 0.5% of GDP in 2026.
These developments correspond to net expenditure growth of 5.3% in 2026. Based on
the Commission’s estimates, the fiscal stance, which includes both nationally and EU
financed expenditure, is projected to be expansionary, by 0.4% of GDP, in 2026. The
general government debt-to-GDP ratio is projected by the Commission to increase to
26.2% by the end of 2026. The increase of the debt-to-GDP ratio in 2026 mainly
reflects a debt-increasing stock flow adjustment.
Key policy challenges
(21)
Luxembourg’s pension system is facing growing medium- and long-term
sustainability risks, as expenditures are projected to outpace contributions in the
coming years. According to the 2024 Ageing Report
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, pension-related spending is
expected to rise steadily, reaching 17.5% of GDP by 2070 – an increase of 8.1
percentage points compared to 2024. This is related to an increasing number of
pensioners per worker, a consequence of an ageing population, coupled with a decline
in net migration, which leads to a higher old-age dependency ratio. While the system
currently holds the EU’s largest pension reserve, without policy adjustments, this
reserve is projected to fall below the threshold envisaged by national legislation by the
early 2040s
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. Projections suggest that once this threshold is reached, the reserve will
be depleted within five or six years. Furthermore, Luxembourg has the lowest
employment rate for older workers in the EU (51% for ages 55-64), despite a statutory
retirement age of 65. Early retirement is allowed from age 57, and generous
entitlements provide strong financial incentives to exit the workforce early and not to
participate in adult learning. In 2024, the government launched a public consultation
on the perspectives of the pension system. In a first phase, it gathered input from a
broad range of stakeholders and the general public reflecting the main concerns:
adaptability, sustainability and equity of the system. A second phase of the
consultation is ongoing. Active labour market policy measures to encourage longer
working lives and higher participation rates among older workers would help address
this issue and support economic growth.
(20)
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The figure represents the level of the annual budgetary cost of those measures, including revenue and
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers.
European Commission, 2024,
2024 Ageing Report. Economic and Budgetary Projections for the EU
Member States (2022-2070).
Cahier statistique no 18 – IGSS, 2024.
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(22)
Luxembourg is confronted with a severe housing challenge, as affordability has
markedly declined over the past decade due to soaring property prices. Housing prices,
which had been increasing steadily by above 5% annually, surged by nearly 60% from
2018 to 2022, making Luxembourg one of the EU’s most expensive housing
markets
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. The persistent supply-demand imbalance, fuelled by tax structures
favouring land and property hoarding, was further exacerbated by institutional
investors entering the presales housing sector
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. Reforms, such as a comprehensive
land-use policy and tax measures to increase the supply of buildable land, could help
increase housing supply, including through the supply of affordable housing. Priorities
also include implementing the Housing Pact and adopting the housing tax reform as
well as strengthening the macroprudential framework and phasing out fiscal incentives
to borrow, which support high house prices
19
.
Luxembourg faces significant transportation challenges due to high cross-border
commuter traffic and high dependency on cars, including company cars, exacerbated
by housing costs that push workers to reside further away from their workplace
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. This
situation has resulted in traffic congestion, impacting productivity and environmental
sustainability. Moreover, despite recent notable reductions in greenhouse gas
emissions from road transport, through policies like the National Mobility Plan 2035
21
and free public transport, the sector remains the primary greenhouse gas emissions
source, accounting for 60% of total emissions in Luxembourg’s effort-sharing sectors
in 2023
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. While Luxembourg has made progress in promoting electric vehicles and
improving public transport, a coordinated, cross-border strategy would be needed to
address the needs of its commuting workforce. This includes improving connectivity,
integrating rail transport infrastructure with neighbouring countries, integrating
ticketing systems and improving last-mile connections. Further decarbonising
transport and investing in public transport infrastructure would help reduce emissions
in line with the national 2030 emission reduction target.
Luxembourg’s financial hub hosts a number of multinational groups, where a
significant share of international financial flows takes place between these entities
within multinational groups. They may be in a position to exploit loopholes in
Luxembourg’s tax system that reduce taxable income. While the entry into force of
Council Directive (EU) 2022/2523
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(the ‘Pillar 2 Directive’) on 1 January 2024 aims
to address the issue of low taxation of large multinational corporations, its scope is
limited to those with an annual revenue of at least EUR 750 million, leaving many
companies outside its scope. Furthermore, the conditional measure of non-
deductibility of interest and royalty payments, initially introduced in 2021, is narrowly
focused on those in the agreed EU list of non-cooperative jurisdictions and does not
effectively address the issue of low- or zero-tax jurisdictions.
Eurostat,
prc_hpi_q,
and Estimations du taux de rendement d’un investissement locatif au Luxembourg,
Rapport d’analyse 13,
Observatoire de l’habitat
(2025).
Coût du logement: Une comparaison du Luxembourg avec la France, la Belgique et l’Allemagne, Note
40, Observatoire de l’habitat (2024).
European Commission, 2023,
In-Depth Review 2023 - Luxembourg.
Statec, 2025,
P2021 N°18 - La dépendance automobile persiste pour les déplacements domicile-travail.
Plan national de mobilité,
Ministère de la Mobilité et des Travaux publics.
The effort-sharing emissions for 2023 are based on approximated inventory data. The final data will be
confirmed in 2027 after a comprehensive review.
Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of
taxation for multinational enterprise groups and large-scale domestic groups in the Union (OJ L 328,
22.12.2022, p. 1, ELI: http://data.europa. eu/eli/dir/2022/2523/oj).
(23)
(24)
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(25)
In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion
2.2 of Annex V to that Regulation, the recovery and resilience plan includes an
extensive set of mutually reinforcing reforms and investments to be implemented by
2026. These are expected to help effectively address all or a significant subset of
challenges identified in the relevant country-specific recommendations. Within this
tight timeframe, finalising the effective implementation of the recovery and resilience
plan including the REPowerEU chapter, is essential to boost Luxembourg’s long-term
competitiveness through the green and digital transitions, while ensuring social
fairness. The systematic involvement of local and regional authorities, social partners,
civil society and other relevant stakeholders remains essential in order to ensure broad
ownership for the successful implementation of the recovery and resilience plan.
The implementation of cohesion policy programmes, which encompass support from
the European Regional Development Fund (ERDF), the Just Transition Fund (JTF)
and the European Social Fund Plus (ESF+), has accelerated in Luxembourg. It is
important to continue efforts to ensure the swift implementation of these programmes,
while maximising their impact on the ground. Luxembourg is already taking action
under its cohesion policy programmes to boost competitiveness and growth. At the
same time, Luxembourg continues to face challenges, including those relating to the
supply and affordability of housing, skills mismatches in the context of the green and
digital transitions, the labour market integration of older workers and vulnerable
groups, and decarbonisation. In accordance with Article 18 of Regulation (EU)
2021/1060, Luxembourg is required – as part of the mid-term review of the cohesion
policy funds – to review each programme taking into account, among other things, the
challenges identified in the 2024 country-specific recommendations. The Commission
proposals adopted on 1 April 2025
24
extend the deadline for submitting an assessment
– for each programme – of the outcome of the mid-term review beyond 31 March
2025. It also provides flexibilities to help speed up programme implementation and
incentives for Member States to allocate cohesion policy resources to five strategic
priority areas of the Union, namely competitiveness in strategic technologies, defence,
housing, water resilience and energy transition.
The Strategic Technologies for Europe Platform (STEP) provides the opportunity to
invest in a key EU strategic priority by strengthening the EU’s competitiveness. STEP
is channelled through 11 existing EU funds. Member States can also contribute to the
InvestEU programme supporting investments in priority areas. Luxembourg could use
these initiatives to support the development or manufacturing of critical technologies,
including clean and resource-efficient technologies.
Beyond the economic and social challenges addressed by the recovery and resilience
plan and other EU funds, Luxembourg faces several additional challenges related to
weak regional coordination and inefficient deployment of cross-border transport
networks; under-exploited potential for the adoption of new technologies and
digitalisation of SMEs; significant regulatory barriers remaining; high economic
reliance on foreign investment stocks which are declining from 2017 (in percentage of
GDP); current energy mix still dominated by fossil fuels and gas for transport and
buildings; worsened performance and increased disparities leading to unequal
(26)
(27)
(28)
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Proposal for a regulation of the European Parliament and of the Council amending Regulations (EU)
2021/1058 and (EU) 2021/1056 as regards specific measures to address strategic challenges in the
context of the mid-term review (EUR-Lex
- 52025PC0123 - EN - EUR-Lex).
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opportunities in schools; persistent skills mismatches and shortages of high skilled
workers in key sectors linked to the green and digital transitions.
(29)
Despite its strong scientific base and internationally well-connected research system,
business innovation and the scale-up opportunities of innovative start-ups and small to
medium-sized enterprises (SMEs) remain limited, hampering the diversification and
competitiveness of the economy. Luxembourg’s potential for adoption of new
technologies and digitalisation remains under-exploited, with Luxembourg performing
below the EU average in terms of basic digital intensity of SMEs
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. Additionally, the
country’s business R&D intensity has been on a downward trend over the last two
decades, falling to 0.47% of GDP in 2023, far below the EU average of 1.49%
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.
Moreover, the quality of research outputs is not fully leveraged, with science-business
linkages remaining weak. While partly explained by Luxembourg’s services-based
economy, business R&D spending is substantially lower than in top-performing
countries across a broad range of sectors, suggesting that low business R&D spending
does not solely reflect the large size of the financial sector
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.
To address the challenge of boosting competitiveness in Luxembourg, it is essential to
consider promoting inclusive and innovative diversification in the financial sector
2829
,
which could help address the sector’s structural weaknesses, provide support for
innovative and high R&D intensive activities, and create a more robust and
competitive economy aligned with EU policies. Strategic promotion and integration of
innovative and high-growth sectors – such as sustainable finance, fintech, digital and
emerging technologies – could lead to a more robust and competitive economy. The
strong relationship between real GDP growth and the growth of Luxembourg’s
international investment position relative to its GDP (IIP/GDP)
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suggests that the
country’s economic performance is closely tied to its ability to attract and retain
foreign investment. Promoting innovative and high-growth sectors could help reverse
the decline in the IIP/GDP ratio and support economic growth. To achieve this,
Luxembourg could leverage the potential of its financial centre to finance productive
and innovative activities, such as those supporting the green and digital transitions, by
promoting collaborative ventures and innovative financing models, and supporting the
development of new financial instruments and products. In particular, further
supporting innovative structuring of blended finance and cooperative ventures could
help enable greenfield investment in sustainable and high R&D intensive activities.
Ensuring transparency and accountability in the financial sector is also crucial, as it
could help build trust and confidence among investors, consumers and other
stakeholders.
While Luxembourg is committed to improving the regulatory environment for the
business services sector, significant regulatory barriers remain. According to the
OECD
31
and the European Commission
32
, regulatory restrictions are still particularly
Eurostat (isoc_e_dii,
2024)
and Luxembourg Startup Ecosystem Assessment and Benchmarking,
Ministère de l’Economie,
2023.
Conseil national de la productivité, 2023.
OECD Economic Surveys: Luxembourg 2025.
OPC LUX: Climate Policy Observatory, Luxembourg, Annual Report
2023.
Z/Yen Group 2024,
Smart Centres Index 10.
Eurostat,
(bop_iip6_q),
(namq_10_gdp).
OECD,
Product Market Regulation indicators,
2024.
European Commission,
Communication on updating the reform recommendations for regulation in
professional services,
COM(2021) 385, 9.7.2021.
(30)
(31)
25
26
27
28
29
30
31
32
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high for lawyers, notaries, architects, civil engineers, and accountants. For notaries, the
restrictions are among the strictest in the EU. The regulation imposing the legal form
of their business, and the regulation of entry into the profession were highlighted as
very strict. Entry regulations for lawyers are also particularly restrictive
33
. Barriers to
competition can be due to limited pathways to access some professions, various
administrative obligations, the existence of binding tariffs, or the prohibition of any
form of advertising and marketing
34
. Reducing the requirements or increasing
flexibility would boost competition in the sector of regulated professions, which would
benefit the businesses that buy these services. In the retail sector, regulatory
restrictions are still slightly higher than in peer countries, although they have
significantly decreased since 2018
35 36
. Examples of such restrictions are the
requirement to obtain specific authorisations for opening clothing, food and beverage
outlets and the permission to do sales promotions only during specific periods of the
year
37
.
(32)
Luxembourg’s current energy mix is still dominated by fossil fuels, with fossil fuels
making up 61.1% of gross domestic consumption in 2023. While the country has made
efforts to increase the share of renewable energy sources, they accounted for only
11.9% of the energy mix in 2023
38
, highlighting the need for further action to diversify
the energy mix and reduce reliance on fossil fuels. In addition, Luxembourg largely
depends on its neighbours to meet its energy needs. While electricity grids are
sufficient for its current needs, the transmission system operator sees a need to both
increase and modernise the high-voltage grid and improve interconnections, in
particular with Germany, between now and 2040. Municipalities will also play a key
role in developing detailed local plans for deploying renewable energy, including wind
power and photovoltaics, and for district heating and cooling systems. Decarbonising
buildings is crucial, as they accounted for 20% of total emissions in Luxembourg’s
effort-sharing sectors in 2023
39
. The recent slight increase in energy consumption in
the residential sector highlights the need for further progress in building renovations
and energy efficiency to meet the 2030 reduction target of 50% emissions compared to
2005 levels. Improving energy efficiency in both residential and non-residential
buildings is essential to reduce energy consumption by 34% by 2030, as outlined in
the national renovation strategy.
Low basic skills levels pose a threat to labour productivity and competitiveness in
Luxembourg. The proportion of low achievers in the country is higher than the EU
average, with a significant score gap between advantaged and disadvantaged students,
making it the widest in the EU
40
. This performance deficit develops early, particularly
among pupils from disadvantaged backgrounds and those who do not speak German or
Luxembourgish at home, highlighting the need for targeted support. The absence of a
(33)
33
34
35
36
37
38
39
40
OECD,
Product Market Regulation indicators,
2024.
OECD,
OECD Economic Surveys: Luxembourg | OECD,
p. 106, April 2025.
OECD,
Product Market Regulation indicators,
2024.
European Commission, 2022 update of the
Retail Restrictiveness Indicator.
OECD,
OECD Economic Surveys: Luxembourg | OECD,
p.107, April 2025.
Gross inland consumption 2023 (Eurostat).
The effort-sharing emissions for 2023 are based on approximated inventory data. The final data will be
confirmed in 2027 after a comprehensive review.
https://www.oecd.org/content/dam/oecd/en/publications/reports/2019/12/pisa-2018-results-volume-
i_947e3529/5f07c754-en.pdf.
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unified school quality framework at national level
41
prevents effective monitoring and
may accentuate segmentation and inequalities. Current policies fail to address
disparities across school system, underscoring the need for a more comprehensive
approach
42
. Adopting a national school quality framework and an external school
evaluation system, as well as adapting teaching to the needs of disadvantaged students
and those from various linguistic backgrounds, could help reduce the performance gap
and improve overall skills levels. Ultimately, this would also support the country’s
long-term economic growth and social cohesion. Addressing these challenges would
also contribute to supporting upward social convergence, in line with the Commission
services’ second-stage country analysis of the Social Convergence Framework
43
.
(34)
Despite its strong economic performance, Luxembourg is facing persistent skills
mismatches and significant shortages of skilled workers
4445
in key sectors linked to the
green and digital transitions. Some 80% of SMEs encounter difficulties in recruiting
workers with the right skills in certain professions
46
, which may hinder
competitiveness. Meanwhile, shortages are reported in several occupations requiring
specific skills related to the digital and green sectors. Several challenges persist in
promoting skills development in Luxembourg. Participation of older workers in
learning programmes remains low. Moreover, there is still a significant gap between
the current adult training rate and Luxembourg’s national 2030 skills target of 62.5%
(17.3 percentage points)
47
, highlighting the need for targeted initiatives to promote
reskilling and upskilling.
Luxembourg’s health system faces challenges with shortages of health workers,
mainly due to the high reliance on foreign-trained health professionals, unequal
distribution of staff, and a significant proportion of doctors expected to retire by 2034.
Ageing of the population will exacerbate challenges. More efficient use of limited
resources and better governance is a precondition to strengthen the resilience of the
health system. Addressing the fragmentation of health services through more
prevention and community-driven models of care, provided in teams rather than in
solo practices, is a key factor of efficiency gains in the future. Better use of data and
information in governance and planning and stepping up digitalisation are key to
supporting the transformation of the health system.
In view of the close interlinkages between the economies of euro-area Member States
and their collective contribution to the functioning of the economic and monetary
union, in 2025, the Council recommended that the euro-area Member States take
action, including through their recovery and resilience plans, to implement the 2025
Recommendation on the economic policy of the euro area. For Luxembourg,
recommendations (2), (3), (4) and (5) help implement the first euro-area
recommendation on competitiveness, while recommendations (1), (4) and (5) help
implement the second euro-area recommendation on resilience, and
(35)
(36)
41
42
43
44
45
46
47
See Observatoire national de l’enfance, de la jeunesse et de la qualité scolaire (OEJQS), 2024, Topical
report: Evidenzorientierte Qualitätsentwicklung im Gesamtsystem Schule
(German).
Épreuves Standardisées (ÉpStan).
SWD(2025)95 – Second-stage country analysis on social convergence in line with the Social
Convergence Framework (SCF),
2025.
Eurostat,
(lfsq_urgan).
Eurostat, (jvs_q_nace2).
Education and Training Monitor 2024.
2022 Adult Education Survey.
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recommendation (1) helps implement the third euro-area recommendation on
macro-economic and financial stability set out in the 2025 Recommendation.
HEREBY RECOMMENDS that Luxembourg take action in 2025 and 2026 to:
1.
Reinforce overall defence spending and readiness in line with the European Council
conclusions of 6 March 2025. Ensure that net expenditure respects the path
recommended by the Council on 21 January 2025. Address the long-term
sustainability of the pension system, in particular by limiting early-retirement options
and increasing the participation and employment rate of older workers by enhancing
their employment opportunities and employability. Increase housing supply, in
particular by adopting a comprehensive land-use policy and a property tax reform,
developing large-scale district projects on public land, and strengthening
coordination with urban planning and cross-border public transport. Mitigate risks
related to the housing market by phasing out fiscal incentives to borrow and by
strengthening the macroprudential framework. Take further action to effectively
tackle aggressive tax planning, in particular by ensuring sufficient taxation of
outbound payments of interest and royalties to zero-/low-tax jurisdictions, other than
those included in the agreed EU list of non-cooperative jurisdictions for tax purposes.
In view of the applicable deadlines for the timely completion of reforms and
investments under Regulation (EU) 2021/241, ensure the effective implementation of
the recovery and resilience plan, including the REPowerEU chapter. Accelerate the
implementation of cohesion policy programmes (ERDF, JTF, ESF+), building, where
appropriate, on the opportunities offered by the mid-term review. Make optimal use
of EU instruments, including the scope provided by the InvestEU and the Strategic
Technologies for Europe Platform, to improve competitiveness.
Focus economic policy related to investment on fostering innovation and supporting
high R&D intensive activities. Boost competitiveness, including by promoting
diversification, in particular in the financial sector, accelerating digitalisation, in
particular in the uptake of advanced digital technologies by SMEs, and enabling
business scale-up and productivity growth. Reduce barriers to competition in
regulated professional business services.
Improve sustainable and efficient transport by further promoting the decarbonisation
of transport and investing in public transport infrastructure and cross-border
networks. Reduce overall reliance on fossil fuels by investing in energy efficiency in
both the residential and non-residential sectors. Modernise the high-voltage grid and
increase its capacity, improve cross-border interconnections, and ease permitting
procedures for renewable energy deployment. Support municipalities in deploying
renewable energy.
2.
3.
4.
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5.
Improve performance and ensure equal opportunities in schools, including by
adopting a national school quality framework and an external school evaluation
system, and by adapting teaching to the needs of disadvantaged students and those
from various linguistic backgrounds. Address skills mismatches, in particular for the
green and digital transitions, by stimulating skills development. Improve the
resilience of the health system by ensuring appropriate availability of health workers.
Accelerate reforms to improve the governance of the health system and e-health.
Done at Brussels,
For the Council
The President
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