22 Feb 2012

Euro crisis : more questions than answers…

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Euro CrisisThe Sacred Heart University, Luxembourg has reorganised a second round of discussions on the Euro crisis, during a conference held on 12th January, I attended. The topic is today once again very sensitive, as the EU states are still in tough negotiation what concerns the bail-out of Greece.

During this conference, the focus was particularly on the Grand-Duchy of Luxembourg and on its ability to face the global crisis. Many questions were raised such as : How will Luxembourg be affected ? Will the Euro remain a rival to the Dollar ? Who is paying for the crisis ? Will there be more inflation ? Will there be a recession ? Will the North pay for the South ? How will the crisis be resolved ? And last but not least … Is European integration damaged ?


The opening and relevant presentation from Carlo Thelen, Chief Economist & Head of the International Department, Chamber of Commerce (Luxembourg) reminded that the crisis has surged in several countries of the Euro zone and it has developed through several dimensions : finance, economy, business confidence, public debt.
The key-messages by the Luxembourg business community are :

  • the business confidence is rather depressing
  • the “employment engine” might stall in 2012
  • in term of investment: today’s indecision might hamper tomorrow’s growth

According to Thelen, in the current economic situation, Luxembourg is inheriting Europe’s woes :

  • the downturn in world trade is directly affecting Europe’s most open economy, i.e. Luxembourg
  • the lack of consumer and investor confidence is disturbing short, medium and long term growth perspectives
  • the uncertainty with regard of the sovereign debt crisis is still looming and investment and employment levels are suffering
  • high energy prices and political instability are endangering a potential global recovery

In this context, Luxembourg is facing long lasting structural problems. “Home-made” problems intensify Luxembourg’s growth perspectives :

  • Public sector deficits might hamper the public investment capacity in the near future
  • the “pension bomb” is still ticking and needs to be disarmed asap
  • Luxembourg is prone to political standstill, unpopular decisions are often put off
  • the setting of wages remains largely disconnected from productivity
  • the lack of political representation of foreigners and cross-border workers is threatening social cohesion
  • Red tape and bureaucratic burdens are not tackled as they should be



Dr. Christian Ghymers, Directorate General for Economic and Financial Affairs (European Commission) stated that there has been a popular demand for debt and easy money over the last 10 years. In this way, the Euro crisis is mainly a governance crisis. He outlined (according to his own opinion) the “incompetence” at each level in the EU model :

  • the treaty was unable to enforce the rule of 3 % ratio of public debt against GDP
  • the ECB is not any longer a Central Bank (very strict conditions for lending to the EU countries)
  • there is an abuse of sovereignty with the biggest members

Mr. Pierre Leyers, Financial Editor of the daily and prominent newspaper “Luxemburger Wort”, mentioned that a tiny country like the Grand-Duchy, has no longer vote’s right. More than any other countries, Luxembourg has a vital interest in the good health of the EU. But there is a growing discrepancy between economic and political communities, Marco Wagener, Executive Advisor (Chambre des Salariés de Luxembourg) said.

Not all the questions listed above were answered, because solutions are still lacking and/or consensus on how to address some of them has not been reached at that moment. The debate continues …

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