The tired but satisfied faces of delegates from the trade unions and business federation leaders and cabinet ministers at just after 11pm on Tuesday evening told its own story. Somehow the so-called Luxembourg model had again proven its worth. After around 30 hours of negotiations over three days, the final session lasting close to five hours on Tuesday evening,
But while the agreement in principle has been struck, the final deal will not be officially signed until next Wednesday at the latest as will be in New York at the general assembly of the United Nations and then in Japan.
The trade unions, too, have to spend the next few days convincing their members to vote in favour of the agreement.
The right investment, Backes
But it was the trade unions and government ministers who seemed most pleased with the outcome though. As well as Bettel’s visible signs of relief, finance minister (DP) must have been happy that the deal will only cost the state just over €1bn, which would leave deficit at well below the self-imposed threshold of 30% of GDP and should not pose a threat to Luxembourg’s crucial AAA ratings with agencies like Fitch, Moody’s and Standard & Poor’s.
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“This package is the right investment to reduce this inflation that impacts all households and all businesses,” Backes said. “It will bring some peace of mind to this crisis. In particular, by pushing back indexation a little more...”
Indeed, by hopefully managing to lower expected inflation--talk was of a rate of 2.6% rather than as much as 6.8% in the most pessimistic of the three scenarios that Statec published last week--the deal should ensure that no further automatic indexation of salaries will be due this year.
It was not easy to [find a deal] that maintains indexation
This is a crucial result for both unions and employers. The OGBL leadership, which had famously not agreed to the package of measures hammered out at the last tripartite meeting in March, will be able to take the deal struck on Tuesday to its membership with heads held high. “It was not easy to [find a deal] that maintains indexation,” said OGBL president Nora Back. “We had to fight to have no more manipulation or postponements…”
LCGB President Patrick Dury was in equally satisfied mood on Tuesday evening. “We had two main objectives during this tripartite: to support the purchasing power of the population by setting up an energy shield, as we see in France. And to save the indexation system. Both are achieved, so we’re satisfied,” Dury said
The head of the CGFP civil servants’ union told RTL after the conclusion of the meetings that all three major unions had “negotiated as one from start to finish”. But Wolff will also have to take the deal to his members and “try to…push it through”
The sun is still far away. Times remain tough…
Bosses more cautious
, director of the Luxembourg Employers’ Association (UEL) was rather more cynical. “This agreement will be complicated to fully support, due to the additional burdens it entails for employers,” he said. “The sun is still far away. Times remain tough…” He was pleased that household purchasing power would be helped by the package of measures detailed on Tuesday and that the government aims do as much as possible, under EU rules, to help businesses that will not receive direct help with their energy bills. “We are in solidarity and hope that the Luxembourg economy will get through this difficult time.” Reckinger said,
Package to kick in early October, but no VAT cut on food
If all sides do officially sign a final agreement next week, then the measures listed in the package could kick in by early October.
However, anyone hoping that the 1% reduction of certain VAT rates would mean they would be spending less on their groceries will de disappointed. As Paperjam’s Thierry Labro reports, VAT on food is levied at 3%, and therefore will not benefit from the measures to cut the highest rates of VAT from 17% to 16%, the intermediate rate from 14% to 13% and the lower rate from 8% to 7%.
But with geopolitical events constantly shifting, the energy and cost-of-living crisis is far from over just because prices have been capped and state aid has been thrown at the problem.
If events conspire to allow inflation to rise again to the extent that a third salary indexation would be triggered in 2023, then in all likelihood the tripartite will be convened again, and the Luxembourg model will face a fresh challenge.