Luxembourg and the Greater Region: a potential trouble spot?

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Within the European Union, internal borders harbour unaddressed disparities and challenges that persist until today and which might evolve into larger points of contention if not adequately addressed.

While the European Union faces many challenges, from democratic deficit to Brexit and disparities between core and periphery being as pronounced as ever, it has at the same time proven its resilience. This resilience has been manifested most recently by the Green Deal, aiming to transform the EU into a climate neutral economy, and NextGenerationEU, where the Union borrows capital for the first time as a major issuer on financial markets. Regarding the backgrounds against which these measures were taken, Jean Monnet’s “Europe will be forged in crisis” might still hold true.

The issue of cross-border cooperation has most recently gained attention during the pandemic, when borders were unilaterally closed in the Schengen area. While the trigger was once again a crisis, more subtle and underlying issues are just waiting to erupt.

In 2017, border regions made up 30% of the EU’s population and 40% of its territory, making them hypothetically the largest member state in the EU. The most vivid example can be found between Luxembourg, Belgium, Germany, and France. The so-called Greater Region constitutes the largest cross-border labour market in the EU, with over 200 000 people crossing borders daily.

Luxembourg, as the wealthiest nation in the EU, attracts most of these workers. By providing their labour within the Grand Duchy, workers also pay their income taxes there. If employees live and pay taxes in the Grand Duchy, the tax return to the community they reside in is around EUR 6.600 per year. However, if they live on the other side of the border, the sum amounts to solely EUR 35. With these significant fiscal losses in the neighbouring regions, who must, despite all, pay for education, infrastructure and other basic societal needs, it is only natural that they voice their dissent over the matter, asking Luxembourg for fiscal recessions. 

Such restitutions exist already, but only with Belgium, where the Kingdom receives EUR 34 million per year. The money received by Arlon for instance amounts to a significant share of 14% of the municipalities’ total budget. Similar agreements exist in the metropolitan area of Greater Geneva between France and non-EU member Switzerland, which only adds further to the discontent of French and German border municipalities.

But how would a more equitable coexistence within the Greater Region look like, and how could it serve as an example for other border regions in Europe, and for the European Union itself?

Numerous former politicians from bordering regions in France created the initiative “Au-délà des Frontières”, advocating for more cross-border equity. While cross-border workers contribute EUR 3.6 billion yearly to the Luxembourgish budget of around EUR 23 billion, the 100 Luxembourgish municipalities receive EUR 1.8 billion of this share. The association seeks EUR 300 million for 2000 cross border municipalities, which would leave the Luxembourgish ones with EUR 1.5 billion. While this seems like a bearable request that could bury the hatchet, Luxembourg closes its eyes towards the problem, continuing to reap the benefits of the situation while leaving the downsides to others. 

Meanwhile, Luxembourg faces its own issues, including a housing crisis and untameable traffic. Despite the highest population growth in the EU of 2.1% per year, forecasts project a necessary increase of 300 000 workers until 2030. Since these workers will most likely be unable to afford housing in Luxembourg, this will only further drain and put pressure on neighbouring regions, potentially exacerbate tensions in the Greater Region.

So far, the Luxembourgish government has stubbornly refused any types of restitutions, only yielding for one-off projects that are in the direct interest of the Grand Duchy and limited to transport, P+Rs or the expansion of station platforms. Yet, it seems like an increased cross-border cooperation in the Greater Region could offer not only a better fiscal outlook to the neighbouring regions, but also be a remedy for some of Luxembourg’s issues. As the country is currently unable to accommodate more workers, and with more and more Luxembourgish people residing outside the country’s borders because of skyrocketing real estate prices, a common approach towards increasingly transnational issues like accommodation and transport will prove inevitable at some point. What is missing is the awareness that Luxembourg, without its bordering regions, will be unable to sustain its current business model. This might become problematic when we considered that the interdependencies in the Greater Region regarding employment, housing, transport and the environment have become so acute, that land-use planning cannot be done unilaterally.

To add insult to injury, not only has Luxembourg turned a blind eye on the issue, but also the governments in Paris and Berlin have been mute on the subject, abandoning their often overlooked local border municipalities. The European Commission on the other side has limited manoeuvrability, since the issue of fiscal retrocessions does not fall under its competencies.

A European and solidaric approach would not only entail the joint planning and financing of infrastructure projects in the Greater Region, but also a restitution of fiscal benefits reaped by Luxembourg to the detriment of its neighbouring regions. For this endeavour, the Greater Geneva area could serve as an example to be emulated. 

Former prime minister Xavier Bettel, regarding the topic of fiscal retrocessions, replied in 2018 that he does not want to “pay for the Christmas decoration” of the neighbouring regions. Yet, it is not Christmas decorations that the neighbouring regions seek to finance, but basic societal needs like hospitals, childcare facilities and other public services for over a quarter of Luxembourg’s active population. With the new government under Luc Frieden, where Bettel was assigned foreign minister as well as minister for the Greater Region, things seem unlikely to change in the future.