Economy: Luxembourg urgently needs to reform its salary and pension systems to bolster the economy and competitiveness, central bank governor Yves Mersch has warned in an official publication.
“The evolution of salaries has ceased being connected to productivity,” Mersch wrote in the editorial of the Banque centrale du Luxembourg’s second Bulletin of 2012, issued Thursday. The central banker calculated that cumulative salary rises--due to the Grand Duchy’s system of automatic wage increases tied to consumer price inflation-- between 1998 and 2011 have made Luxembourg 35 percent less competitive than Germany.
The labour market has continued to see a slowdown in new job creation and an increase in unemployment, with a notable rise in persistent unemployment for younger workers, Mersch said. The central bank projects the national unemployment rate will reach 6.4% in 2014, compared with 5.7% in 2011.
At the end of April, the government proposed the 13th update to its stability and its national reform programmes, he noted. “Its principal observations correspond exactly to the messages endlessly repeated by the BCL for numerous years.”
However, in May the European Union estimated that Luxembourg will be the European country where pension costs will rise the most by 2060. Mersch argued in his editorial that the pension reform bill tabled in the Chamber of Deputies last January will not adequately sustain the system’s health.
Without naming the nations he had in mind, Mersch said “the recent experience of other European countries show that essential reforms in the fields of competitively and public finances cannot wait. All procrastination in the matter could rapidly lead to a cumulative deterioration of the economic situation.”