European flags raised in front of the Berlaymont building.  Photo: European Union, 2026

European flags raised in front of the Berlaymont building.  Photo: European Union, 2026

Each year, the European Commission reviews economic and social developments in the EU through the European Semester. Going beyond budget surveillance, the European Semester aims to strengthen competitiveness, promote sustainable growth and resilience, and support sound public finances.

Member States contribute through national programmes, policy dialogue and the preparation of country-specific recommendations adopted by the Council.

Housing

Housing remains one of Luxembourg’s most significant structural issues. Despite recent price corrections, prices remain high, and supply has not kept pace with population growth. Building more homes, making better use of land and improving coordination between housing, urban planning and transport policies would help improve affordability. The Commission also highlights risks linked to high household debt and tax incentives that encourage borrowing. In a market where supply remains constrained, these incentives can contribute to higher prices without improving affordability.

Pensions

Luxembourg’s pension system is coming under growing pressure as the population ages. Pension expenditure is projected to rise from 9.2% of GDP in 2022 to 17.5% by 2070, the largest increase projected in the EU. At the same time, Luxembourg has the lowest employment rate of older workers in the Union and many people leave the labour market well before the statutory retirement age. The Commission therefore considers that further measures will be needed to strengthen the long-term sustainability of the pension system, including by helping people stay in work longer and limiting incentives for early retirement.

Skills and competitiveness

Educational outcomes remain strongly influenced by family background and language. At the same time, employers increasingly struggle to find workers with the skills they need. This points to the need for stronger basic skills, targeted support for disadvantaged pupils, lifelong learning and a better match between skills and labour market needs.

Luxembourg also needs to address weaker productivity growth and innovation performance. Stronger investment in research and innovation, closer cooperation between businesses and research institutions, and faster adoption of digital technologies would help support competitiveness and growth.

Taxation and environment

The Commission considers that Luxembourg remains exposed to aggressive tax planning risks and recommends further action to reduce them.

The assessment also highlights growing pressures on water resources, forest health and biodiversity. Improving climate and water resilience through sustainable land use, ecosystem restoration and more circular use of resources would strengthen both environmental and economic resilience.

Addressing these issues early would help preserve Luxembourg’s competitiveness, resilience and quality of life in the years ahead.

More information is available online: www.reforms-investments.ec.europa.eu/european-semester.

A full version of this article is also available in French.