The President of the Banque centrale du Luxembourg (BCL), Yves Mersch has said that the rise in unemployment is mainly due to labor costs being too high.

The BCL presented its first "Bulletin" in 2010 yesterday calling for a reduction in public deficits and an overhaul of the indexing system. The unemployment rate for residents is now reaching a record high of 6%, due to the loss of competitiveness of the Luxembourg economy. If the country has lost competitiveness, this is because of "a sustained increase in wage costs,” was the message delivered by Mersch.

Between 1999 and 2008 wages increased by 38% in the private sector and 48% in the public. The increases granted to civil servants have also served as a reference to the private sector to demand, in turn, pay increases - compared with an increase of 22.9 percent in the euro area and an increase of only 10.5 percent of Luxembourg's most important trading partner of Germany. The see-saw is not in balance.

"The problem is that we increased the price of oil - by means of index - as the wealth of the population dispersed. "We were supposed to be poorer." As for the loss of competitiveness, Luxembourg was in a boat with countries like Ireland, Greece, Portugal and Spain. It should be noted that these countries have already 'taken action in addressing salaries', while in Luxembourg this is still on the waiting list. "We must adjust our costs to those of our neighboring countries," points out Mersch "otherwise, more and more companies will go bankrupt."

The financial sector suffers

Taking the data and conclusions of the 11th update of the Stability Program, Mersch stated that "significant consolidation efforts will be implemented in coming years to ensure the return to a balanced government, and that by 2014 ".

Social Security is particularly high on his agenda since he believes that "increase" in these expenses "must be stopped as quickly as possible, through structural reforms". However a reform of the general pension scheme which is linked to increased spending would be "incompatible with limited economic growth."

The GDP suffered a decrease in growth of just 4% in 2009 (the worst result since 1975) and it is estimated to be around 2% in 2010. As the average of is 4% in recent decades, Mersch believes it is "unlikely that 2011 or even years later" will level off at this figure. Mersch explained that these figures could be attributed to the economic crisis and demonstrated that the sum of the interim balance sheets of banks' showed a decrease of approximately 14.4% as of January 31, 2010 compared to the corresponding date of 2009.

According to Mersch it is the global crisis in economy that is causing setbacks in the financial sector and not vice-versa. This, is an interesting view....