Despite its reputation as a centre for the financial services industry, Luxembourg has not escaped the effect of the crisis on the manufacturing sector. Local suppliers of parts to the automobile industry across Europe as well as the more traditional steel making industry have been hit hard by the global economic slowdown. But other manufacturers are also struggling – as evidenced by the growing number of companies applying for the chômage partiel instruments being offered by the government. Michèle Detaille, managing director of No Nail Boxes, says that there is little some businesses can do bit sit and wait for clients to restart their activity. But there are other problems, too. “Even in those cases where demand still exists, even if it is slightly weaker, there is the problem of credit – some clients just cannot pay,” she explains. With credit insurance coverage diminishing daily, manufacturers are posed with a problem. “We have clients and the demand is there, and we can meet that demand, but we won’t receive payment. I think this is where the state could come in and offer support. Not to replace credit insurers, but to cover some of the risk to allow the market to function.”

Protectionism is a dirty word

Another problem that Detaille highlights is that in today’s global economy not everyone respects the same rules. “Here in Europe, generally if you make an order you are expected to honour it. There are some parts of the world where it is quite normal to cancel an order,” she says. By the very nature of Luxembourg, most manufacturers export and Detaille says the biggest problem posed by the crisis could be a growing trend towards protectionism. “If some countries continue to campaign to ‘buy local’, we will be in a very bad position because we are so small.” At the OGB-L union, general secretary André Roeltgen makes it clear that protectionism is a dirty word. “We will never emerge from this crisis if protectionism rears its head again,” he says. “But just as clearly, it would be wrong to limit the debate about protectionism to trade – social and ecological components have to be given equal billing. If social questions such as unemployment and security, or ecological issues such as climate protection, are not taken into account, then we will not tackle protectionism effectively. Because it is exactly these sorts of problems that can lead to political movements in favour of protectionism – which would be a catastrophe.”

But it is not only protectionism that could threaten Luxembourg’s manufacturing industry, says Detaille. She explains that Luxembourg has several unique challenges in terms of competitiveness. “We see that employment costs are a heavy burden on industry. In Luxembourg the indexation of salaries poses a real problem to enterprises. We have not yet seen the full consequences of the reform of the statut unique because it is quite recent, but we know we will face significant costs for absenteeism. We also have a very high minimum wage. These laws and obligations all have their raison d’être in the general scheme of things – for social cohesion and so on – but we have to ask whether it is up to businesses to pay for the fact that everyone can enjoy a minimum well-being?” Naturally, those arguments don’t wash with Roeltgen. “Luxembourg does not have any fundamental competitiveness problem,” he counters. “We cannot let the crisis add confusion to the question, because all countries have been affected by productivity problems. In 2007 Luxembourg was top of the league among OECD countries in terms of productivity. And over the last ten years we have enjoyed a stronger productivity development than our neighbouring countries of Belgium, France and Germany – and we were already starting from a strong position.”

The union man says that social costs per individual lie below those of our neighbours and of the EU15. Furthermore, the impact of the index is minimal, says Roeltgen because much of the raw material used by manufacturers comes from abroad and is thus subject to rates of inflation beyond the control of Luxembourg. “We have recognised that there is a need during the crisis to maintain or boost purchase power, and indexation is an element that can prevent any further deterioration.” Nevertheless, he does welcome the government’s plan de relance to reboost the economy during the crisis but says that the tax reforms, child bonus credits, or the new cheque service for childcare, were not policies that were made as a direct answer to the crisis. “Everything to do with purchase power can be traced back to the tripartite conclusions of 2006,” Roeltgen argues. Other aspects, such as the public investment programme, had been part of the government’s general budget plans. “It is a lucky coincidence that the measures already taken were in effect part of the conjuncture plan.” Detaille agrees that the government has reacted positively. “I think the government has reacted well to the situation – as have the majority of governments all over the world. Maybe it is some sort of revenge, because it was always said that private managers were teaching politicians, but now the politicians are giving lessons in how to behave to the managers.”

Emerging from the crisis

Detaille also welcomes the chômage partiel measures that have been introduced by the government. “As it has been applied in Luxembourg it is a timely assistance, it shows creativity and flexibility that can help companies survive this downturn,” she says. Roeltgen concurs. “Chômage partiel is a vital instrument in the face of the current crisis, and one that should be given priority. It allows people to retain their jobs and staves off the threat of unemployment.” However, the OGBL is demanding that those affected by chômage partiel should be given 100% of their salary and not 90% as is currently the case under the terms of the law. “We also argue that the project is severely lacking in terms of organisation and accessibility.” He says that chômage partiel does not just have the social aspect of preventing unemployment but also allows businesses to retain their qualified workers and therefore can avoid the costs of expensive redundancies and of re-hiring when they emerge from the crisis.

But once Luxembourg emerges from the crisis, it will continue to face some particular challenges. Detaille and Roeltgen both agree that investment needs to be made in infrastructure. “We are talking about quality investment,” says Roeltgen. “The targets need to be research and education, health services, public transport, and ecological and social housing – subsidies and bonuses, for both construction and renovation, need to be targeted properly.” Detaille agrees that investment in infrastructure – particularly transport and communication and the security of electricity supply – are vital. But she also wants to see Luxembourg place more emphasis on the quality of the products and services. “We have to make sure we continue to train people, be it at school or in the workplace, to provide them with the savoir faire for the industrial sector. Only by focusing on quality can we continue to produce and sell products.”