"If you say 'No' a second time, there will not be a third time". That was the warning Luxembourg Prime Minister Jean Claude Juncker gave the Maltese people in the run-up to the referendum on Malta's EU membership in 2003.

Juncker, now the frontrunner to succeed Romano Prodi as President of the European Commission, was speaking on the basis of the experience of another small country, which has vastly benefited in prosperity, stability and political influence since signing the Rome Treaty in 1957 and becoming a founder member of the European Community. Luxembourg's 440,000 inhabitants now have the highest per capita income in the world.

Speaking in another context, Juncker recalled that "when we joined the European Community, many thought it would mean the disappearance of Luxembourg. With the Community's enlargement to nine, 10, 12, then 15 member states, the same fears were expressed. But nothing of the sort has happened.

"So when the (EU) expands to take in the countries of central and eastern Europe, Cyprus and Malta, Luxembourg will not stop being an international actor or defending its national interests within the Union.

"A small country like Luxembourg gains in sovereignty by sitting around a table along with 24 other countries, and by being able to discuss European affairs, having its say and weighing, even marginally, on Europe's future. That is true of Luxembourg and of every small country"1.

War and peace

Although a neutral country, Luxembourg was invaded and occupied by the Germans in the two world wars of the last century. After the second war, it took a deliberate policy decision to break out of its isolation and abandon its traditional neutrality, while staying true to its motto of "Mir wëlle bleiwen wat mir sin" (we want to remain what we are).

It upgraded its security by joining all the international organisations that were being set up. It became a founding member of the United Nations and its specialised agencies, as well as NATO, the OECD and other Europe-based institutions.

Aware of their country's vulnerability, Luxembourg's leaders cannot miss the wood for the trees. Speaking during a recent interview, Juncker said: "One should explain to Europeans, again and again, that the great European drama has always been, and will always be, to choose between war and peace.

"This drama has not been definitively resolved. So one must again explain to Europeans that a complicated continent sometimes requires complicated arrangements, so that it is not led into one of those situations that caused it so much harm in the past"2.

The establishment of the European Coal and Steel Community (ECSC) in 1951 led to the pooling of the production and marketing of these two products by France and Germany. As coal and steel were then indispensable for war, and France and Germany had been particularly prone to such adventures, the ECSC provided a peace insurance.

Luxembourg, as well as Italy, Belgium and the Netherlands, joined it. Luxembourg also provided the seat of the ECSC's headquarters. The organisation, and its successors in the process of European integration, have given Luxembourg the peace it sought in vain from its erstwhile policy of neutrality.

At present, Luxembourg is host to the European Investment Bank, the European Court of Justice, the European Court of Auditors, the statistics and publication offices of the European Commission and its directorate general for credits and investments, the nuclear safety administration, and the secretariat of the European Parliament.

The council of ministers meets in Luxembourg three times a year. About 32,000 officials of the European institutions and family members now live in Luxembourg and make a substantial contribution to the country's economy. The establishment of these institutions has also contributed to a building boom.

Luxembourg's contribution to the EU's success has been larger than its size. It has given two presidents of the European Commission, Gaston Thorn and Jacques Santer. It has polished to perfection its natural propensity to mediate and find compromises between big countries.

It has also been active in the process of European monetary integration, which started in 1972 with the Werner report, named after the then Luxembourg prime minister who, as chairman of a specialised committee, produced a blueprint for economic and monetary union.

Tax exemption

Juncker himself, as finance minister, chaired the intergovernmental conference on economic and monetary union during the Luxembourg presidency in 1991, which paved the way for the Maastricht Treaty and the euro. Indeed, for several years Luxembourg was the only country which satisfied the Maastricht criteria of low inflation, low public deficit, low public debt and a stable exchange rate.

The truth is that Luxembourg has a vested interest in monetary stability. Its size and past policies make it one of the most open economies in the world. Exports account for about 90 per cent of its gross domestic product, as do imports, and most of its trade is with its three neighbours - Germany, France and Belgium.

It also has a direct interest in the free movement of persons within a secure legal framework. The Luxembourg town of Schengen has given its name to the European convention which lays down the ground rules for freedom of circulation within the signatory states.

Like Malta, Luxembourg has had to diversify its economy over the past half century. In Malta's case, the move was away from dependency on the expenditure of the British armed forces towards the development of manufacturing industry and tourism.

Luxembourg had to go through the decline of the iron and steel industry and developed its provision of banking and financial services. Its main advantage is that it exempts interest earnings on savings from income tax and this attracts huge funds from Germany, Belgium and other countries. It has so far defended this privilege successfully against those EU states which wish to subject all countries to the same tax regime(3).

Otherwise, Luxembourg has always been among the member states working for greater integration. Juncker has already identified the common foreign and security policy as the next great ambition for Europe, "so that Europe can be recognised across the world, exercise its influence, respond to the great need for Europe that one feels throughout the world...

"We should open this way and add to the result of the intergovernmental conference a number of bridges that with time will enable us to decide more rapidly and effectively and thus be more visible and have greater influence in the world."

Looking back over more than 50 years of European history, one can admire the way Luxembourg has used its geographical and human assets to strengthen its own position and the process of European integration. It did so by the constant exercise of good judgment and an unswerving loyalty to Europe.

References

1. Michel Dumoulin and Geneviève Duchenne, Les petits États et la construction européenne, Brussels, 2002.

2. Radio France Internationale, December 15, 2003.

3. Baldur Thorhallsson, The role of small states in the European Union, Ashgate, 2000.

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