Elections on 9 June – what businesses expect from Europe 

Just a few days out from the European elections, we find ourselves facing quite the paradox. The relevance of the European Union has never been more clearly demonstrated than during the current parliamentary term. During the healthcare crisis precipitated by COVID-19, the EU launched an €806 billion recovery plan. The beginning of the war in Ukraine in 2022 prompted the European Union to take decisive action, marking its emergence as a geopolitical force. During the energy crisis, the EU’s measures averted blackouts and supported the economy. And yet, as one of the most intense political cycles in EU history comes to an end, there is a worrying rise in Euroscepticism across member states. Politically, the Union could be significantly weakened after the 9 June elections, which would be tragic, especially in view of the unease ahead of the Hungarian presidency, set to begin on 1 July. We need a strong Europe now more than ever. 

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Europe’s uncoupling: a reality but not a fatality

The European Union has long had the ambition of rivalling the United States from an economic viewpoint. It actually managed to do so in the late 2000s. In 2008, at current prices, the Eurozone ($14.16 trillion) and United States ($14.77 trillion) had very similar levels of GDP. Students learned about this achievement and politicians basked in its glory, as if it proved the success of the European project.

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Public finances: the long-term is a pressing issue

A special budgetary procedure in a special year. As it does every five years, and on 8 October this year owing to the general election, Parliament has been debating a transition budget of “provisional twelfths” [1]. With just a few exceptions, the provisional budget appropriations for the first four months of 2024 equate to 4/12 of the appropriations approved for 2023. New spending not included in the budget approved for 2023 is therefore banned. This procedure can therefore be described as relatively mechanical. While it doesn’t make much sense to be drawing any budgetary or financial conclusions just yet given the current geopolitical and macroeconomic conditions, it is worth remembering that public finances are not just a guarantor of trust in the economy and a driver of infrastructure building, but are subject to numerous challenges and headwinds. To put in simply: urgent action is needed, on both content and form [2].

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The duty to seduce

 In the run-up to elections, the various political parties’ programmes tend to include proposals whose medium- and long-term cost to society and taxpayers, as well as the associated sources of funding, aren’t clearly defined. Sometimes simplistic solutions are put forward, such as making capital or legal entities contribute more. Occasionally, the argument is put forward that in Luxembourg, taxing labour and individuals is a greater burden than taxing capital and companies. This clearly misleading idea stems from a biased analysis of the direct and indirect tax contributions of economic players and of Luxembourg’s current attractiveness in terms of taxation for legal entities and companies. The idea is also based on the mistaken conviction that investors who have chosen the Grand Duchy will subsequently be unable to move to where the grass is greener. More than any other European Union member state, Luxembourg’s prosperity depends on its ability to attract foreign talent and investors.

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The reforms we need to become more attractive and competitive 

Attractiveness and competitiveness are two sides of the same coin. Good performance and a favourable ranking on these two indicators are pre-requisites for strong and steady corporate growth. This is especially true within the Luxembourg economy, which is small in size and particularly outward-facing. One indicator with a direct influence on companies’ performance and the attractiveness and competitiveness of an economy is productivity. 

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Inflation and indexation: a diabolical combination

Recent forecasts from the international institutes predict that advanced countries will see hardly any growth at all in 2023, but that activity will bounce back in 2024. The main reasons for this pause in growth for the current year are: the lag in the effects of soaring energy prices, which have eroded household purchasing power and corporate profitability; and the impact of rising interest rates, which have reduced household consumer spending and investment.

In the current tense and unpredictable geopolitical situation, Luxembourg is also expected to see a similar scenario: a slowdown in activity in 2023, a rebound in 2024, and then a stabilisation of the rate of expansion at around 3%, according to STATEC[1]. Unemployment is forecast to increase slightly over the entire period, while inflation would only return to normal levels from 2025. Moreover, if policy remains unchanged, public finances would be marked by an unprecedented deficit, estimated at -2.2% of GDP in 2023. In the run-up to the tripartite committee meeting on 3 March, a few months before the general election, political measures with a significant impact on public spending can be anticipated. If these measures prove unselective, their effects would be inefficient and their costs to the community and future generations would be extremely high, putting additional pressure on State finances.

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An electoral year in a context like no other

Forecasting is not an exact science, but in economics it is an indispensable exercise. Anticipating trends in order to make the best decisions (especially political ones) at the right time is of the utmost importance. The work of prediction draws on the lessons we have learned from the past and the challenges posed by the present.

At the start of this year, the Council of the European Union’s analysis and research team compiled and summarised some 20 predictive studies for 2023 carried out by various media outlets, research institutes, think tanks and insurance companies from around the world. This is valuable work, as it gives us an overview of the challenges we face.

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The promotion of foreign trade and internationalisation of Luxembourg companies in a changing world – some reflections on the background

Luxembourg’s economy is distinguished by being extremely open internationally (share of exports and imports in GDP) and, on the basis of this indicator, ranks among the most open in the world (as are Singapore, Hong Kong, etc.). This is explained by the considerable weight in its foreign trade of exports of services, nearly 50% of which are of a financial nature. But the fact remains that foreign trade in goods also plays a decisive role in the creation of economic value and Luxembourg companies are increasingly adopting the path of selling their products to clients residing abroad – an obvious choice, since the chances of increasing sales are limited within the confines of the home market. The business plans of many companies established in Luxembourg are exclusively targeted at international markets and the Grand Duchy offers numerous advantages as an international platform for developing import/export activities with partners located throughout the globe.

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Budget 2023: truly responsible, realistic and supportive?

While the budget for 2021 was necessarily exceptional because of the COVID-19 crisis, it seems that the exception is becoming the rule in these turbulent times. This was confirmed by the Finance Minister’s speech entitled “A crisis budget in a time of crisis” when tabling the 2023 financial year State budget bill (and the multi-annual 2022-2026 financial programming bill), if any doubt might still have lingered. The Prime Minister’s State of the Nation address the previous day had set the tone.


Characterised as responsible, realistic and supportive, is the 2023 budget really these things?

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