Luxemburg’s banking sector hit by financial crisis, unforeseen constitutional crisis

Lit­tle Lux­em­bourg was bad­ly shak­en both by the glob­al finan­cial cri­sis and by the home-made con­sti­tu­tion­al cri­sis in the last quar­ter of 2008.

The inter­na­tion­al finan­cial cri­sis near­ly threw into bank­rupt­cy the two biggest pri­vate banks of the coun­try. Both banks rep­re­sent­ed not only nation­al pride in finance mat­ters: a long exper­tise and a high pres­tige doped with ‘triple A’-ratings. “Dex­ia-Bil”, the old­est bank of the Grand Duchy, and “For­tis” for­mer­ly “Banque Générale du Lux­em­bourg” are of focal impor­tance for the nation­al econ­o­my. Had they dis­ap­peared, the con­se­quences for the nation­al econ­o­my could not have been worse, as Jean-Claude Junck­er put it in a TV address to his fel­low citizens.[1] In both cas­es, heavy loss­es of the Bel­gian or French moth­er agen­cies brought their Lux­em­bourg daugh­ter agen­cies big trou­ble. Only a con­cert­ed action by the Bel­gian and Lux­em­bourg gov­ern­ment and at a cer­tain moment also by the Dutch gov­ern­ment – did save those two banks from bank­rupt­cy. A strong pub­lic inter­ven­tion could per­suade new investors to take par­tic­i­pa­tion in the banks’ cap­i­tal. Hence, the Lux­em­bourg state became a major share­hold­er of the banks and could rely on accu­rate pub­lic reac­tion to sign pub­lic bonds in order to finance the oper­a­tion, at least par­tial­ly.

Luxembourg’s Trea­sury Min­is­ter, Luc Frieden, also had to deal with the prob­lems of the Lux­em­bourg daugh­ter agen­cies of the bank­rupt Ice­landic banks in order to help the employ­ees and save the saver’s inter­ests. Most recent­ly, Luxembourg’s invest­ment fund indus­try, one of the best per­form­ing in Europe, has come into trou­bled waters with the ‘Mad­off finan­cial scandal’.[2] At this moment it is still too ear­ly to fore­see and doc­u­ment all the con­se­quences and impli­ca­tions.

Until the very last moment, Lux­em­bourg bank man­agers tried to make the larg­er pub­lic believe that the inter­na­tion­al bank­ing cri­sis could be con­fined to the US. Unfor­tu­nate­ly, this pol­i­cy soon revealed to be a fairy tale and had to be attrib­uted to a cer­tain extent to some bank man­agers’ incom­pe­tence. In this way, the finan­cial cri­sis might have been fore­see­able, but the con­sti­tu­tion­al cri­sis hit Lux­em­bourg total­ly unpre­pared.

Luxembourg’s mon­archs, unlike Britain’s or Monaco’s roy­als, do not usu­al­ly appear in the yel­low press. Since the 1919 con­sti­tu­tion­al reform, when uni­ver­sal suf­frage was intro­duced, the coun­try has been a full-scale demo­c­ra­t­ic state: a con­sti­tu­tion­al monar­chy where the sov­er­eign is sup­posed to reign, but not to gov­ern.

Since the imple­men­ta­tion of the 1868 con­sti­tu­tion (when Lux­em­bourg still was unit­ed with the Nether­lands in a per­son­al union – the Dutch King was at the same time Grand Duke of Lux­em­bourg) the Grand Duke signed the laws and ordered their appli­ca­tion through pub­li­ca­tion in the offi­cial bul­letin. By sign­ing a law already vot­ed on in par­lia­ment, the monarch approved it ipso fac­to. By refus­ing to sign a bill already vot­ed on, he could veto it and there­by pre­vent its imple­men­ta­tion. Since the late 19th cen­tu­ry, the writ­ten con­sti­tu­tion is no longer in har­mo­ny with the cur­rent prac­tice in Lux­em­bourg, as the reign­ing Grand Dukes nev­er used their right to veto a law already vot­ed on.

In Feb­ru­ary 2008, a new law was passed in par­lia­ment mak­ing euthana­sia, in cer­tain con­trolled cas­es, legal. The Greens,[3] Liberals[4] and most Socialists[5] approved it, where­as the Chris­t­ian Democrats[6] vot­ed against it and were defeat­ed, although they were a part of the rul­ing coalition.[7] The Catholic church opposed the law all togeth­er with the most influ­en­tial news­pa­per, the “Lux­em­burg­er Wort”.[8] A few days before the sec­ond read­ing of the law, Grand Duke Hen­ri informed the polit­i­cal lead­ers of the coun­try that he would not sign the bill “for rea­sons of con­science”. Tra­di­tion­al­ly, the sov­er­eigns have always main­tained a posi­tion of polit­i­cal neu­tral­i­ty. This was the first time in Luxembourg’s his­to­ry that a sov­er­eign attempt­ed to block a deci­sion which had been agreed on in par­lia­ment.

The Prime Min­is­ter, who had been informed ear­li­er about the Grand Duke’s deci­sion, tried to con­vince the monarch to stick to the nor­mal con­sti­tu­tion­al unwrit­ten prac­tice that his pre­de­ces­sors had always respect­ed. Appar­ent­ly, the Grand Duke’s deci­sion was irrev­o­ca­ble. Junck­er respond­ed quick­ly by say­ing the coun­try would change its con­sti­tu­tion to reduce the pow­ers of the sov­er­eign: “Because we wish to avoid a con­sti­tu­tion­al cri­sis, but at the same time respect the opin­ion of the Grand Duke, we are going to take the term of ‘approve’ from arti­cle 34 out of the con­sti­tu­tion and replace it with the word ‘promulgate’.[9] The French news­pa­per “Le Figaro” called Juncker’s act a “con­sti­tu­tion­al Coup d’Etat”[10]. The deci­sion came after two hours of emer­gency talks with the polit­i­cal lead­ers who gave their sup­port to the mea­sure tak­en. A con­sti­tu­tion­al change would require a two-third major­i­ty in par­lia­ment. Being also opposed to the euthana­sia bill, Junck­er said: “I believe that if par­lia­ment votes a law, it must be brought into force”[11]. Luxembourg’s Min­is­ter of Jus­tice, Luc Frieden, said that the Grand Duke would no longer par­tic­i­pate in the leg­isla­tive process; he would just sign the law to mark the com­ple­tion of the procedure”.[12]

Par­lia­ment passed a his­tor­i­cal vote on 11 Decem­ber 2008: with 56 votes and one absten­tion the revi­sion of the arti­cle 34 of the con­sti­tu­tion was approved. The amend­ment vot­ed reads as fol­lows: “The Grand Duke enacts laws with­in three months of the vote of the house”[13]. Accord­ing to arti­cle 114 of the con­sti­tu­tion, any change in the con­sti­tu­tion must be adopt­ed by the “Cham­ber of Deputies” in two suc­ces­sive votes with a min­i­mum of a two-third major­i­ty and with an inter­val of at least three months between them. The text adopt­ed at the first read­ing may, under cer­tain cir­cum­stances, be sub­ject to a ref­er­en­dum, which will replace the sec­ond vote of the house.[14]

Henri’s choice to refuse to put his sig­na­ture to the law brought the Luxembourg’s monar­chy ques­tion back into dis­cus­sion. The most recent polls in Decem­ber 2008 show that only 62 per­cent of the Lux­em­bourg­ers still want the monar­chy to be preserved.[15] Just after World War I, and a failed procla­ma­tion of the repub­lic in 1919, a ref­er­en­dum proved that 80 per­cent of the Lux­em­bourg peo­ple vot­ed in favour of the new Grand Duchess Char­lotte, the grand­moth­er of the present Grand Duke, thus sav­ing the monar­chy. In 2005, 82 per­cent of the Lux­em­bourg pop­u­la­tion could not even imag­ine liv­ing in a republic.[16] In his New Year’s address Grand Duke Hen­ri pro­claimed: “It was nev­er my inten­tion to stand against the will of the major­i­ty of the people’s rep­re­sen­ta­tives. That is a right to which I am not entitled!”[17] Hen­ri also dis­missed the ini­tia­tive of a cit­i­zens com­mit­tee to organ­ise a ref­er­en­dum on the con­sti­tu­tion­al amend­ment strip­ping the Grand Duke of his rights. He declares to sup­port the con­sti­tu­tion­al reform fully.[18]

 

 

[1] RTL TV Lux­em­bourg lan­guage ser­vice: Spezial, 31 Decem­ber 2008.
[2] La voix du Lux­em­bourg: Jean­not Krecké (Min­is­ter of Eco­nom­ic Affairs) “On l’a échap­pé belle”, 3 Jan­u­ary 2009; Lux­em­burg­er Wort: Mad­off. La liste des fonds lux­em­bour­geois con­cernés, 24 Jan­u­ary 2009.
[3] Déi Gréng.
[4] Demokratesch Partei.
[5] Lëtze­buerg­er Sozial­is­tesch Aar­bechter­partei.
[6] Chrëschtlech Sozial Vollekspartei.
[7] Tage­blatt: 30 Abge­ord­nete sagten Ja, 20 Feb­ru­ary 2008.
[8] Lux­em­burg­er Wort: Fataler Irrweg, 20 Feb­ru­ary 2008.
[9] 352 Lux­em­bourg news: Lux­em­bourg con­sti­tu­tion­al cri­sis avert­ed, 20 Decem­ber 2008.
[10] Le Figaro.fr: Créa­tiv­ité poli­tique au Lux­em­bourg, 2 Decem­ber 2008.
[11] La Voix du Lux­em­bourg: Un change­ment impor­tant, 3 Decem­ber 2008.
[12] 352 Lux­em­bourg news: Lux­em­bourg con­sti­tu­tion­al cri­sis avert­ed, 4 Decem­ber 2008; The Times: Grand-Duke stripped of pow­er after stand against euthana­sia, 4 Decem­ber 2008.
[13] Cham­bre des Députés: Compte-ren­du des séances publiques, 11 Decem­ber 2008.
[14] In Jan­u­ary 2009 a ref­er­en­dum pro­ce­dure has been launched by a cit­i­zens com­mit­tee: 25,000 of about 230,000 list­ed vot­ers have to sign in their local town hous­es the peti­tion call­ing for a ref­er­en­dum. The nec­es­sary quo­rum was not met. The ref­er­en­dum will not take place.
[15] Le Jeu­di: La monar­chie écorchée, 11 Decem­ber 2008.
[16] Le Jeu­di: Monar­chie plébisc­itée, 6 Octo­ber 2005.
[17] See: http://www.monarchie.lu/fr/Presse/Discours/2008/12/Discours_Noel_EN/index.html (last access: 25 Jan­u­ary 2009).
[18] De Volk­skrant: Vlekkeloze paleis­rev­o­lu­tie Lux­em­burg, 27 Decem­ber 2008.