On 12 February 2008, the Council examined the updated stability programme of Luxembourg, which covers the period 2007 to 2010. Since the end of the 2001-2003 slowdown, Luxembourg is experiencing a new period of strong growth. On average, real GDP grew by 5,25 % and domestic employment by over 3 % a year in 2004-2007. In this context, Luxembourg has been able to bring its public finances back to surplus. Growth should remain strong during the period covered, even if it is forecast to slow down slightly in the coming years. However, despite the currently good condition of the economy and especially of public finances, the problem of population ageing will be particularly severe in Luxembourg and long-term sustainability is therefore a serious challenge.

In view of this risk assessment Luxembourg appears to be at medium risk with regard to the sustainability of its public finances. The long-term budgetary impact of ageing is among the highest in the EU, influenced notably by a very considerable projected increase in pension expenditure.

The overall conclusion is that public finances have gone back to surplus in a context of strong GDP and employment growth. Recently released revised data indicate that the deterioration in public finances has been significantly more limited than previously estimated. Consequently, Luxembourg has constantly achieved its MTO (medium-term objective) and the path for the general government balance in the programme is at least 1 % of GDP better in each year than in the previous update.

Luxembourg is invited to improve the long-term sustainability of its public finances by implementing structural reform measures, in particular in the area of pensions.