Capital: Luxembourg
Population: 500,000

Political Rights Score: 1
Civil Liberties Score: 1
Status: Free


Luxembourg's coalition government remained popular for most of 2008, but the worldwide financial crisis in the fall hit the country hard, and the authorities were forced to act to limit the economy's exposure to the turmoil of the international market.

The Grand Duchy of Luxembourg was established in 1815, after the Napoleonic wars. Following a brief merger with Belgium, it acquired its current borders in 1839. The country was occupied by Germany during both world wars, and it abandoned neutrality to join NATO in 1949. After forming an economic union with Belgium and the Netherlands in 1948, Luxembourg became one of the six founding members of the European Community – now the European Union (EU) – in 1957; it adopted the euro currency in 1999. A former Luxembourg prime minister, Jacques Santer, served as president of the European Commission, the EU's executive arm, from 1995 to 1999.

After falling in public opinion polls in 2003, the center-right Democratic Party (PD) lost 5 of its 15 parliamentary seats in the 2004 elections. The opposition Socialist Worker's Party of Luxembourg (POSL) gained a seat for a total of 14, and replaced the PD as the junior coalition partner of Prime Minister Jean-Claude Juncker's Christian Social Party (PCS), which captured 24 seats. The Green Party won 7 seats, and the Action Committee for Democracy and Pension Justice (ADR) took 5 seats.

Juncker's coalition government remained relatively popular in 2006, undertaking budget cuts and reforms of the system of wage indexation, in which nationwide wages increased automatically with prices, in order to fight inflation. In 2007, recalculated budget numbers made some of the recent reforms seem unnecessary, prompting labor unions to demand renegotiation. However, the government stood by the deal, instead awarding one-time bonuses for 2007 and 2008, along with an extra day of vacation.

The defeated EU constitutional treaty, which referendum voters in France and the Netherlands had scuttled in 2005, was reintroduced in a more modest form, known as the Lisbon Treaty, in 2007. EU leaders signed the document in October of that year. Juncker was widely considered a likely candidate for the new job of European Council president under the treaty, but the ratification process was stymied in mid-2008 when Irish referendum voters rejected the agreement. Juncker announced that he would again lead his party in national elections scheduled for 2009.

An international financial crisis emerged in late 2008, hitting Luxembourg hard; the grand duchy was an important financial hub. Among other responses, the government banned the short-selling of assets that the seller did not actually possess. While authorities in surrounding countries worked with Luxembourg to shore up major banks in the region, some also began to criticize Luxembourg's banking-secrecy rules. Such criticism intensified in the wake of scandals involving Bernie Madoff, an American investor who defrauded clients, many of whom used Luxembourg-based funds to deal with him. Luxembourg and Switzerland boycotted a Franco-German-led meeting to draw up a list of tax havens. Meanwhile, economic growth in the country appeared likely to slow substantially following years of expansion.

Political Rights and Civil Liberties

Luxembourg is an electoral democracy. The head of state is the unelected Grand Duke Henri, whose powers are largely ceremonial. The unicameral legislature, the Chamber of Deputies, consists of 60 members elected by proportional representation to five-year terms. The legislature chooses the prime minister. Citizens of EU countries may vote after six years' residency but are not obliged to do so; residents from non-EU countries may not vote. Foreigners constitute over a third of Luxembourg's population.

The political system is open to the rise of new parties, as demonstrated by the growth of the ADR. Originally a one-issue party focusing on higher pensions, it first had deputies elected in 1989 and did well in the 2004 elections (though a deputy left in 2006, officially reducing the party from "party" to "group" status). There are three traditionally strong parties: the PCS, historically aligned with the Catholic Church; the PD, which favors free-market economic policies; and the POSL, a formerly radical but now center-left party representing the working class. The current government, elected in 2004, is a coalition of the PCS, which has taken part in almost all governments in Luxembourg's modern history, and the POSL.

The government is largely free from corruption. Luxembourg was ranked 11 out of 180 countries surveyed in Transparency International's 2008 Corruption Perceptions Index.

Freedom of expression is guaranteed by the constitution, and Luxembourg has a vibrant media environment. A single conglomerate, RTL, dominates the broadcast radio and television market, and its programming is popular in neighboring countries. Newspapers represent a broad range of opinion. Internet access is unrestricted.

Roman Catholicism is the dominant religion, but there is no state religion, and the state pays the salaries of clergy from a variety of sects. Students may choose to study either the Roman Catholic religion or ethics; most choose the former. Protestant education is available on demand. Academic freedom is respected.

Freedoms of assembly and association are protected. Civic groups and nongovernmental organizations operate freely. Luxembourgers may organize in trade unions, and a large proportion of the workforce does so. The right to strike is constitutionally guaranteed.

The judiciary is independent, but judges are appointed by the grand duke. Detainees are treated humanely in police stations and prisons.

Luxembourg's Muslim minority, mainly of Bosnian origin, faces no official hostility but does experience some mild social discrimination. In 2007, the government agreed to give Muslim leaders the same recognition and financial support enjoyed by religious leaders of other faiths.

In part because of Luxembourg's conservative social mores, women comprise just under 40 percent of the labor force, and there remains a significant gap between men's and women's wages. Though the law does not technically allow abortion on demand, a woman who has had an abortion while in "distress" is considered not to have violated the law, and "distress" is interpreted liberally. Women are underrepresented in the highest levels of government; 13 of 60 members of parliament, and three of 15 cabinet members, are women.

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