The Government, OGBL, LCGB, CGFP and UEL met on 12 May for the first meeting of the Tripartite Coordination Committee. It was an opportunity to hear the views of Statec, represented by its director Tom Haas and the Government Commissioner for Energy, Simeon Hagspiel, to provide an update on the impact of the Iranian crisis on the economy. These expert opinions will inform the discussions between the social partners as they prepare for the tripartite meeting scheduled for early June.

The tripartite talks are expected to run longer than the scheduled dates of 2 and 3 June. “I have asked the social partners to free up their schedules for the following week to allow the negotiations to take place under the best possible conditions,” said the Prime Minister, Luc Frieden. The Prime Minister remains determined that the focus should remain solely on the impact of the energy crisis on the economy. Frieden also reiterated that the principle of indexation will not be touched. This indexation is set to be at the heart of the debate, given Statec’s forecasts.

Inflation could reach 6%

Statec has presented two scenarios based on the duration of the Iranian crisis and the blockade of the Strait of Hormuz. These scenarios are far more pessimistic than those presented in the latest economic report. If the blockage of Hormuz were to end by the end of the month, the inflation rate in Luxembourg would stand at around 2.5% in 2026 and fall back to 1.7% in 2027. Two index-linked adjustments would then be scheduled: the one expected on 1 June and a second in the second quarter of 2027. The Luxembourg economy would maintain positive growth, and the unemployment rate would remain stable at around 5.9%.

If the blockage of the Strait of Hormuz were to last another six months, headline inflation would rise to an average of 4% in 2026, with peaks approaching 6% during the year. This scenario would trigger three index-linked adjustments: one in June 2026, another in the third quarter of 2026, and a third in the third quarter of 2027. “Although nominal wages would rise via the index, real disposable income per person would come under pressure during periods of high inflation,” explains Tom Hass. A notable effect would be that fuel prices at the pump could exceed €2 per litre as early as this summer.

Cross-border workers under pressure

For Simeon Hagspiel, the situation in Luxembourg is paradoxical: whilst the risk of immediate shortages has been ruled out, the country’s dependence on imports — Luxembourg has no production or refining capacity for petroleum products, which nevertheless account for 59.7% of its total energy consumption — means that three groups are particularly vulnerable to price rises at the pump: transport, logistics and cross-border workers. Finally, although the impact on electricity is currently mitigated by renewable energy, the coupling of gas and electricity prices and increased volatility pose a threat to industrial competitiveness.

Conclusion from the Energy Commission: whilst supply chains are holding up for the time being, the long-term viability of the economy depends on reducing dependence on fossil fuels by accelerating electrification and developing locally generated energy.

Three weeks to think it over

The social partners have three weeks to consider these findings and prepare their proposals for the tripartite meeting, which is due to begin on 2 June.

For the trade union federation led by Nora Back and Patrick Dury, it is important to distinguish between deep-rooted structural problems and mere temporary incidents in order to ensure a meaningful analysis. According to Patrick Dury, “crises that build upon one another must not be treated in isolation. The problems we face are structural. It is therefore necessary to adopt a broad and comprehensive view rather than focusing on isolated elements.” Namely, purchasing power, competitiveness and the impact of artificial intelligence.

The CGFP is calling for a temporary tax cut

On the contrary, the General Confederation of the Civil Service (CGFP) expressly welcomes the fact that the government has limited the agenda of the tripartite meeting primarily to the economic and social consequences of the energy crisis. Given the urgency of the situation, the Confederation is calling for a temporary tax cut — “a swift and tangible measure” — pending the entry into force of the tax reform introducing a single tax bracket. The union is also calling for an optimisation of the energy tax credit and wider access to tax deductions for higher earners, to fully account for the real burden associated with rising energy costs.

On behalf of the President of the UEL, Michel Reckinger… the announcement of three possible index-linked increases has come as a hammer blow. “This announcement took all stakeholders by surprise.” The UEL fears there are major risks to the viability of businesses. “Businesses are becoming increasingly pessimistic.” Michel Reckinger fears that “there isn’t much room for manoeuvre to cushion these blows.”

"The indexation mechanism remains untouchable"

Luc Frieden, Prime Minister

Following the meeting — “a meeting aimed at reaching a shared assessment of Luxembourg’s economic situation, which took place in a constructive atmosphere” — Luc Frieden reaffirmed the government’s commitment “to protecting citizens’ purchasing power whilst safeguarding business competitiveness and job creation”. He placed particular emphasis on the need to boost job creation, “which has been weak over the past two years”.

Clearly, Luc Frieden is concerned about the prospect of three index-linked pay rises over a twelve-month period, “which will have a detrimental effect on the economy.” Although the wage indexation mechanism remains untouchable, he says he is open to various fiscal support measures. “Without setting a predefined budget.” The support measures will be discussed at a later date with the Finance Minister, depending on the needs identified, he said.

The Prime Minister stated that there was no question of backtracking on the tax reform championed by Gilles Roth. Despite criticism from the IMF. This issue is expected to be addressed during the State of the Nation address on 19 May. Along with other major socio-economic issues.