Annual Report - paperJam

The crisis hits home
With an economy largely dependent on exports and with 98% of banks being of foreign origin, it is
clear that Luxembourg and its financial sector are impacted by these international developments.
While, compared to other countries, Luxembourg seemed to be affected later by the economic crisis,
2010 was the year when the political, social and financial strains became more obviously apparent at
home. Indeed, until last year, many people in Luxembourg had not realised that the crisis had also affected
their country. And some still haven’t.
The fact that the trade unions insisted, in their negotiations on a collective bargaining
agreement with the ABBL, on increasing salaries by 8.4% over the next 3 years, clearly
illustrated that some parties still refused to acknowledge economic reality.
The extent to which perceptions of the crisis and its impacts diverged already became evident earlier
in the year when the tripartite negotiations failed in April 2010 after five fruitless meetings. For the employers’
association and for the ABBL, it was clear that the financial crisis had fully exposed structural
weaknesses that we have been pointing out for years and that the country can no longer afford to
ignore. In order to maintain a viable social welfare system, far-reaching healthcare and pension reforms
are unavoidable. After decades of rocketing, particularly when compared to neighbouring countries,
labour costs also need to be kept in check if the country wants to remain competitive internationally.
Business as usual is no longer an option. Sooner better than later, tough decisions will have to be
taken to steer the country in the right direction.
The financial sector has been the country’s job and growth engine for decades.
But it has taken a serious hit.
The banking sector has particularly suffered. Pre-Lehman, the net result of Luxembourg banks
was 4.6 billion Euros. A year later, in 2009, this had melted to 218 million. From December 2009
to December 2010, the result before provisions dropped by 20.8%. To make matters worse, this
coincided with increased costs. In 2010, for example, we saw a salary increase of 2.5% (indexation),
0.85% for accident insurance, 0.80% for the collective bargaining agreement, 0.1% for the national
health insurance: a cumulated increase of 4.25% at a time when profit margins are seriously shrinking.