Extrait du rapport concernant les thèmes clés :
KEY ISSUES
- Context: Luxembourg’s hallmark stability has served well its economy and financial system. The latter endured the euro area crisis in 2011 and experienced limitedspillover effects from the breakup of Dexia group, whose subsidiary had substantial retail operations in Luxembourg. Still, the economy is poised to slow further in 2012, with weak prospects in the euro area prospects tilting risks to the downside.
- The financial sector: The banking sector’s main risk is its exposure to foreign parent banks. In this regard, Luxembourg’s supervision has been strengthened but further efforts are needed to clarify the roles of its supervisory authority and central bank, including regarding liquidity supervision. Luxembourg should also move ahead with non-legislative measures on bank resolution and deposit insurance as it awaits EU-level finalization of those legal frameworks.
- Fiscal policy: Besides continued current expenditure restraint to forestall rising public debt, a high-quality consolidation should be supported by a medium-term fiscal framework. Still, aging-related expenditures challenge fiscal stability. Luxembourg’s generous pension system is not sustainable and will require more comprehensive reform than the proposed long-run incentives to increase the effective retirement age.
- Structural policies: Boosting long-run growth will largely depend on reforming labor markets to address skill mismatches and negative work incentives. Further efforts are also needed to limit harmful competitiveness effects of automatic backward-looking wage indexation with a view of eliminating it in the medium term. Product market reforms can support these efforts by fostering competition, spurring productivity growth and possibly increasing economic diversification.
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