The Fault(s) of Luc Frieden

Who is governing for the next election—and who is governing for the next generation?

Luxembourg is heading toward a crisis whose scale could be reminiscent of the severe upheavals of the 1970s. Yet the crisis of the 2020s is not primarily an economic crisis—it is, above all, a crisis of political paralysis.

Luxembourg is coming under increasing pressure as a business location because policymakers are unwilling to decisively address the structural problems that have been worsening for years. Policy is still being conducted as if the country were set to continue growing at its usual rate of three percent. Not only was the politically driven growth of past decades not accompanied by necessary reforms, but there is also no convincing response today to the end of this growth momentum. Luxembourg and the world are changing—yet policymakers remain stuck in old ways of thinking.

Long-term strategies to address the housing crisis? None to be found. Sustainable measures to prepare the social security and pension systems for demographic challenges? None to be found. Reserves for economically difficult times, or contingency plans to guard against geopolitical and economic shocks? None to be found either.

The political class seems increasingly preoccupied with itself, while the country’s structural problems remain unresolved. Necessary reforms are postponed, watered down, or lose their impact before they can even take effect. Short-term investments with high electoral appeal are given priority over long-term investments that could actually solve Luxembourg’s fundamental challenges.

When the problems eventually become too great, the usual political blame game begins: sometimes the Reds are to blame, sometimes the Blacks, sometimes the Greens, and sometimes the Blues. But this partisan attempt to square the circle leads neither to solutions nor to insights. Luxembourg is too small to get permanently bogged down in ideological trench warfare between “left” and “right.” Especially since, for decades, largely the same parties and often the same political actors have been determining the country’s fate.

One of these figures bears a special responsibility today: Luc Frieden. As Minister of Finance from 1998 to 2013, he was initially jointly responsible for, and later solely responsible for, the country’s fiscal policy. After ten years in the private sector, he returned to politics in 2023 and liked to present himself as a sort of “CEO of Luxembourg”—an efficient manager who leads the state with entrepreneurial foresight.

The reality of fiscal policy, however, paints a different picture.

The trend in government debt, in particular, raises questions. During Frieden’s tenure, Luxembourg’s government debt rose from 7.4 percent to 23.1 percent of gross domestic product. Since 2023, it has risen from around 26 percent to an estimated level exceeding 30 percent. These figures hardly fit the image of a statesman who promises stability, foresight, and intergenerational justice.

Of course, these developments are not solely the result of Frieden’s policies. The four major parties that have shaped Luxembourg over the decades are also responsible. It is equally true that the financial crisis and the bank bailouts have contributed significantly to the debt. Nevertheless, the long-term trend remains worrying, and the lessons learned from past crises are meager—especially because the country’s core structural problems have never been sustainably resolved, despite growing debt. Housing, mobility, the pension system, and economic diversification have been discussed regularly, but never reformed with the necessary consistency.

What we have witnessed in recent decades resembles the behavior of a management team operating without effective oversight. It has been known for over 25 years that Luxembourg’s population would grow to 700,000 and beyond in the long term. The revenue generated by this growth was readily accepted. Instead of investing the additional funds specifically in addressing the major challenges—the dysfunctional housing market, the overburdened transportation infrastructure, and a pension system in need of reform—they were often used to finance short-term political interests.

As elections approach, the major mainstream parties regularly turn into politicians who are quick to spend. New subsidies are approved, benefits are expanded, and the government apparatus is enlarged. The government’s operating costs rise steadily, without this leading to any improvement in the foundations for the future.

The Trauma of 2014

The year 2014 demonstrated that a different path would have been possible. With the “Future Package,” the government at the time made a rare attempt to implement genuine fiscal consolidation measures. But in the wake of the referendum defeat and the resulting headwinds, the political will to consistently pursue this course was lacking. Reforms were watered down or postponed, and maintaining the Gambian government was declared the overriding goal.

Since this collective retreat, no government seems to have been willing to even utter the word “austerity.” Instead, a tacit consensus has taken hold: crises are bridged by taking on additional debt. The bill for this will not be footed by today’s decision-makers, but by future generations.

In this environment, the Tripartite is increasingly acting as a fire department. When a fire breaks out, politicians, employers, and trade unions come together to put it out. This is undoubtedly one of the strengths of the Luxembourg model. But in the future, it will no longer be enough to simply fight fires.

In an increasingly unstable international environment, the risk of new crises is rising for Luxembourg as well. The country therefore needs more than just a fire brigade. It needs institutions that identify risks early on, point out undesirable trends, and promote long-term thinking. More than a CEO whose fiscal record offers little cause for optimism. More than parties that think primarily only as far as the next election.

The Solution: A Supervisory Board for the Future

Luxembourg needs a Future Commission modeled on the Finnish example. Such a body would serve as an independent guardian of long-term interests—or, in the words of Luc Frieden: as a permanent supervisory board for politics. The commission should be established as a constitutional oversight body and tasked with reviewing all major legislative proposals for their long-term impacts over a period of 20 to 30 years.

It should pay particular attention to the areas that will determine the country’s future viability: housing, mobility, education, the welfare state, the pension system, and Luxembourg’s fundamental economic and growth model.

Future governments should not only be required to explain the policies they intend to pursue over the next five years. They should also be required to explain how their decisions fit into long-term scenarios for the coming decades.

Such a commission should consist of independent experts and representatives of civil society. Like a genuine supervisory board, it should have the right to publicly criticize irresponsible election promises, financial risks, or political measures with negative long-term consequences, and to issue appropriate warnings.

Imagine if Luxembourg had had such a tool at its disposal in the early 2000s, when it was clear that the country’s population would reach 700,000. The past 25 years could have been used to create housing, expand infrastructure, build up reserves, and prepare public finances for demographic changes.

Instead, the future has all too often been sacrificed to day-to-day political concerns.

A self-proclaimed CEO who speaks of vision, resilience, and long-term policy, yet bears shared responsibility for rising public debt in the absence of structural reforms, should have been subject to such scrutiny. That is precisely why Luxembourg today needs less political posturing—and more institutionalized accountability for the future.