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. 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’. 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, Liberals and most Socialists approved it, whereas the Christian Democrats voted against it and were defeated, although they were a part of the ruling coalition. The Catholic church opposed the law all together with the most influential newspaper, the “Luxemburger Wort”. 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’. The French newspaper “Le Figaro” called Juncker’s act a “constitutional Coup d’Etat”. 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”. 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”.
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”. 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.
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. 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. 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!” 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.
 RTL TV Luxembourg language service: Spezial, 31 December 2008.
 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.
 Déi Gréng.
 Demokratesch Partei.
 Lëtzebuerger Sozialistesch Aarbechterpartei.
 Chrëschtlech Sozial Vollekspartei.
 Tageblatt: 30 Abgeordnete sagten Ja, 20 February 2008.
 Luxemburger Wort: Fataler Irrweg, 20 February 2008.
 352 Luxembourg news: Luxembourg constitutional crisis averted, 20 December 2008.
 Le Figaro.fr: Créativité politique au Luxembourg, 2 December 2008.
 La Voix du Luxembourg: Un changement important, 3 December 2008.
 352 Luxembourg news: Luxembourg constitutional crisis averted, 4 December 2008; The Times: Grand-Duke stripped of power after stand against euthanasia, 4 December 2008.
 Chambre des Députés: Compte-rendu des séances publiques, 11 December 2008.
 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.
 Le Jeudi: La monarchie écorchée, 11 December 2008.
 Le Jeudi: Monarchie plébiscitée, 6 October 2005.
 See: http://www.monarchie.lu/fr/Presse/Discours/2008/12/Discours_Noel_EN/index.html (last access: 25 January 2009).
 De Volkskrant: Vlekkeloze paleisrevolutie Luxemburg, 27 December 2008.