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In the early 1900s, Luxembourg developed from
a poor agricultural nation to an industrial nation with
the steel as its base. During the second half of the
century, the country was transformed into one of the
world's most important financial centers with very high
standards of living. From the end of the war in 1945 to
the end of 2013, the Christian Democrats led all but one
government.
After the Second World War (1939-1945), Luxembourg
abandoned the neutrality policy of 1867. Instead, the
cooperation with other Western Europe was deepened. Long
before, as early as 1921, however, Belgium and
Luxembourg had decided on an economic union with a
single currency (UEBL, introduced in 1922). In 1948 came
the Benelux Union, which also includes the Netherlands.
It gradually developed into a customs union, which was
fully implemented in 1970.
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ABBREVIATIONFINDER:
List of most commonly used acronyms containing Luxembourg. Also includes historical, economical and political aspects of the country.
In 1949, Luxembourg was a member of the NATO Alliance
and founded the defense alliance, and the country was
initially involved in the cooperation that eventually
became the EU.
The Christian Socialist Party (CSV) was the largest
party and dominated all government formation except
1974-1979, when socialists and liberals formed a
coalition. Otherwise, CSV generally ruled with the
Socialist Workers' Party (LSAP). On a few occasions,
most recently 1999-2004, the government partner was
instead the Liberal Democratic Party (DP).
Political stability was also evident on the personal
front. Christian Democrat Pierre Werner was prime
minister for a quarter of a century from 1959, with the
exception of the five-year period when the CSV stood
outside the government. Jacques Santer, who became head
of government in 1984, sat down until he resigned to
become EU Commission President in 1995. Santer was
succeeded by Jean-Claude Juncker, who came to hold the
post for nearly two decades.
 Grand Duchess Charlotte, who abdicated in 1964 in
favor of her son Jean, had sat on the throne for 45
years. When Jean in turn abdicated in 2000, in favor of
his son Henri, he had been head of state for 35 years.
Luxembourg as a financial center is questioned
Luxembourg's position as a financial center with
far-reaching banking secrecy towards the end of the 20th
century increasingly led to political disputes. Critics
have argued that such secrecy can be exploited by both
tax refugees and terrorists and drug dealers who want to
launder money. Many EU citizens had interest income from
accounts in Luxembourg, without transparency for their
own tax authorities.
When the EU introduced automatic exchange of
information on foreign EU citizens' interest income on
savings accounts in 2005, Luxembourg, along with Belgium
and Austria, had been granted exemption rules. When the
so-called Savings Directive came into force, the three
countries instead imposed a withholding tax on
non-resident EU citizens' interest income and sent part
of the income to their home country. It was seen as a
great success especially for Luxembourg.
In the first referendum since the 1930s, the
Luxembourg citizens in July 2005 agreed to the proposal
for a new EU constitution, despite the fact that it was
already stopped in practice by referendums in France and
the Netherlands. Prime Minister Juncker had threatened
to resign at a no. Jasidan received a modest 56 percent
of the vote, even though all major parties supported the
proposal.
Constitutional crisis
In 2008, when Parliament adopted a contentious
proposal that legalized euthanasia, euthanasia, (see
Social Conditions), a constitutional crisis arose. The
head of state, the deeply religious Grand Duke Henri,
refused to approve the law. According to the current
constitution, his approval was required for the law to
apply. The Christian Democrats were also against the
law, but Juncker explained that a law passed by
Parliament must come into force. The solution was to
change the constitution so that the monarch no longer
approved new laws.
The global financial crisis that erupted in 2008
prompted the government to present a stability plan. The
main objective was to reduce government spending,
achieve budgetary balance and maintain the country's
competitiveness. A number of other reforms were also
promised, regarding, among other things, the right to
abortion and marriage for gays (see Social conditions),
as well as changes in primary education, student loans
and the health care system.
After the June 2009 elections, CSV and LSAP formed a
new government. Juncker began his fourth term as prime
minister but resigned from the post of finance minister,
which he held since 1989.
Luxembourg emerged from the recession until the end
of 2009. The crisis in the euro zone that escalated in
2011 again led to increased concern, although Luxembourg
continued to be regarded as one of the richest countries
in the world. The credit rating agency Moody's warned in
the summer of 2012 that Luxembourg was at risk of having
its credit rating lowered from the top AAA listing,
which had previously appeared unthinkable.
Juncker leaves
In July 2013, a government crisis occurred after a
serious scandal involving the SREL security service was
revealed. It turned out that SREL had engaged in illegal
telephone interception on a large scale - by
politicians, among others - and also committed
corruption. There were also suspicions that SREL had
been involved in a series of unresolved explosions in
the 1980s, which were aimed at public targets.
A parliamentary committee investigating the scandal
accused Juncker of having failed the supervision and
lost control of SREL, whose business rests directly
under the prime minister. SREL turned out to have also
intercepted Juncker himself. The scandal caused LSAP to
threaten with a vote of no confidence and demand new
elections. As a result, Juncker was forced to step down,
after nearly 19 years as head of government. He
continued to lead an expedition ministry.
Criticism had also been directed at Juncker, who many
considered devoted too much time to his EU missions, and
too little to domestic policy issues. At his departure,
Juncker had been sitting longer than any other
democratically elected head of government in the world.
However, in early 2013, he had left the post of the euro
group's first permanent chairman, a post he held for
eight years.
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