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COUNTRY BRIEFS


OVERVIEW

Australia enjoys a constructive and positive bilateral relationship with Luxembourg. Official contact with the Government of Luxembourg is focused on multilateral issues including in the World Trade Organisation and international disarmament negotiations. The Australian Ambassador to Belgium has non-resident accreditation to Luxembourg.

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POLITICAL OVERVIEW

System of government

The Grand Duchy of Luxembourg is an hereditary constitutional monarchy ruled by the Grand Duke Henri of Luxembourg. Legislative power is exercised by the unicameral Chamber of Deputies with 60 members elected for five year terms. Some legislative functions are also entrusted to the advisory State Council, with 21 members appointed for life by the Grand Duke, although decisions made by this body can be overruled by the legislature. Executive power is vested in the Grand Duke, but is normally exercised by the Council of Ministers, led by the head of the government (Prime Minister). The Grand Duke appoints ministers, but they are responsible to the legislature.

Although Luxembourg is divided into 12 counties for administrative purposes, it is subdivided differently during general elections and for the purpose of local government. During elections, Luxembourg is subdivided into four electoral districts or constituencies: Center, East, North and South. In relation to local government, the Grand Duchy is subdivided into three administrative districts: Diekirch, Grevenmacher and Luxembourg. District Commissioners serve as intermediaries between the central Government and the 118 municipalities.

Major parties

The main political parties are the Christian Social Party (CSV — Christian Democrats), the Luxembourg Socialist Workers Party (LSAP), and the Democratic Party (PDL — Liberals). Other political parties include the Socialist Workers' Party (LSAP), Action Committee for Democracy and Pensions Justice (since 1992, the ADR), the Green Party, the Left Party and the Communist Party. The CSV has consistently been the largest party and has provided the Prime Minister for 64 out of the last 69 years.

Political developments

The political situation in Luxembourg is remarkably stable, dominated by the centre-right CSV with strong associations with the Catholic Church. The CSV has been in government either in its own right or in coalition since 1919, except for the period 1974-1979.

The 13 June 2004 elections resulted in the formation of a coalition government between the Christian Social Party (CSV — Christian Democrats) and the Socialist Worker's Party (LSAP). Recent polls indicate a high level of approval for the work of the current Government, with the global financial crisis having no tangible impact on public perceptions so far. Luxembourg's parliamentary elections on 7 June 2009 delivered a resounding victory for the ruling CSV led by Prime Minister Jean-Claude Juncker. The CSV increased its vote and won two more seats, leaving it with 26 seats in the 60-seat parliament. The new CSV-LSAP coalition government was sworn in on 23 July 2009. Mr Jean-Claude Juncker remained Prime Minister and Minister of State, and took on the role of Treasurer. Mr Jean Asselborn, leader of the LSAP, retained his position as Deputy Prime Minister and Minister for Foreign Affairs.

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FOREIGN RELATIONS

Luxembourg is a strong supporter of multinational organisations as they assist in the attainment of policy goals and increase its influence. Luxembourg is one of six founding members of the European Union. Luxembourg is a signatory to the Brussels Treaty providing for collective self defence between its members, a NATO member and a founding member of the Council of Europe. Luxembourg held the Presidency of the EU from January to June 2005. On 29 May 2008 Luxembourg's Parliament voted by an overwhelming majority to approve the Lisbon (EU Reform) Treaty. Luxembourg plays host to several European institutions including the Secretariat-General of the European Parliament, the European Court of Justice and the European Investment Bank.

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ECONOMIC OVERVIEW

Luxembourg has a relatively open and stable economy. According to the Economic Intelligence Unit (EIU March 2010) economy contracted by 3.4 per cent in 2009 and is forecast to grow moderately by 2.6 per cent in 2010, and 1.5 per cent in 2011. The Luxembourg Government predicts the annual inflation rate will fall to 0.4 per cent in 2009 before rising to 1.2 per cent in 2010 (EIU predicts 2.1 per cent). The unemployment rate has remained steady at 5.5 per cent, but may rise to 6.1 per cent in 2010. Luxembourg has adopted the Euro as its currency.

Although Luxembourg's economy has weathered the global economic crisis better than expected, its manufacturing industry (which exports almost its whole production) experienced a downturn and its financial sector (given the international character of its activities) is proving sensitive to developments abroad. Luxembourg's public debt doubled in 2008, largely due to the provision of support for the financial sector. The Luxembourg Government has been working on a package of economic and social measures to combat the global financial crisis, with infrastructure projects scheduled for 2011-2012 brought forward. The package is valued at over 3 per cent of GDP and would result in a 25 per cent increase in public spending.

Germany, France and Belgium, Luxembourg's nearest neighbours, account for most of its two-way trade. Since 1921, Luxembourg has been in economic union with Belgium — the Belgium-Luxembourg Economic Union (BLEU).

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BILATERAL RELATIONSHIP

High level visits

The Minister for Foreign Affairs, the Hon Stephen Smith MP, met Luxembourg's Foreign Minister Mr Jean Asselborn at the London Conference on Afghanistan in January 2010, and prior to that at the UN General Assembly (UNGA) in September 2009.

His Royal Highness Grand Duke Henri and Grand Duchess Maria Teresa of Luxembourg visited Australia 20 July - 2 August 2008 to attend World Youth Day in Sydney.

Bilateral agreements

Australia has a number of bilateral agreements with Luxembourg, covering issues such as mutual assistance on criminal matters, extradition and visas.

Bilateral economic and trade relationship

In 2009-10, Luxembourg ranked as Australia's 94th largest merchandise trading partner, with total trade valued at almost A$40.5 million, heavily in Luxembourg’s favour. Australia’s major exports, worth A$1.8 million for the year comprised mainly measuring and analysing instruments, and civil engineering equipment/parts. Key imports, worth A$38.6 million, were heating and cooling equipment/parts and rubber tyres, treads and tubes.

Australia exported A$119 million worth of services to Belgium/Luxembourg in 2009 (note: the Australian Bureau of Statistics does not separate services trade data for Belgium and Luxembourg) and imported A$95 million worth of services. Australian investment in Luxembourg was valued at A$8.6 billion in 2009. Luxembourg ranked 16th as an investment destination for Australia in 2008. Luxembourg investment in Australia in 2009 was valued at A$14.4 - up from A$7.8 billion in 2008.

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Last Updated: November 2010

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