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					Mr President, Ladies and gentlemen, The way time flies and the speed with which we move around cause us quickly to forget what has been, even if only recently it was keeping us on our toes or rushing us off our feet. What just a few months ago rendered us speechless, we drive from our memory as soon as we have found our voices again, and we gladly forget about things that have driven us to doubt if the situation does not turn out to be so desperate after all. And things that have made us happy, we take for granted, as if we cannot put up with ourselves being happy and content for once. We find this basic pattern of behaviour not only in our own lives. We find the same set of reflexes in the life of the country, in the ups and downs of the nation which this address concerns. A quick glance back over the year 2000 demonstrates these truths. Midway through last year – on 1 June – the drama of the child hostages in Wasserbillig turned our world upside down. What up to then we had only heard of in foreign news reports was all of a sudden on our doorstep. We were able to handle the crisis – and it was a crisis– because the staff of the "Sparrow's Nest" kept a grip on themselves. In particular, the three teachers who were with the children right to the end won our admiration and earned our respect and thanks. They, who – unlike many others, but just like the parents and the children – cannot erase that day from their memory, will be honoured with the National Order of Merit by the Grand Duke on 21 June. People who demonstrate civil courage over long hours, and for all that time think not of themselves but first and foremost of others, have earned the recognition of their compatriots and therefore of the country itself. However, the happy ending to the drama was also thanks to our police, who tackled the situation with clear heads, steady hands and technical know-how. In Wasserbillig, our police showed what they are capable of. In response to the excessive criticism of their actions not only from the international press but to some extent also from the national press I say this: when it is a matter of the life of innocent parties, and all the more so when they are children, then extreme methods are permitted which have no place in the day-to-day work of the police. We are paying attention to the day-to-day work of the grand-ducal police. Their equipment is being steadily updated and improved, and in the budget for 2001 a total of LUF 591 million – 145 million more than last year and 210 million more than in 1999 – has been earmarked for this purpose. The procurement of bulletproof vests will be concluded in the course of the year. A helicopter is to be made permanently available to the police force, on terms which have still to be determined. By the year 2009, every year 60 police volunteers will be recruited to the police academy, at which currently 140 persons are being trained for service. We do not want a police State, but an efficient State with a well-trained police force that is alert and ready for action. The security of the country is and will remain a political priority. Wherever it is threatened, the State has to take action. This is why the Government did not merely resolve the strike among the security personnel who move cash around – and that was hard enough – but also improved the safety of the conditions under which they work. The brutal murder of one of those security guards is another event from the year 2000 that has already almost been forgotten – but not by his wife. And it is our duty to ensure, as far as humanly possible, that such a crime will never be repeated.

The year 2000 also saw events at European level that directly affect our country, and indeed will actually mould its future, and which we should therefore not forget. While they actually took place last year, their implications still lie ahead. The decision on tax policy taken by the Feira European Council in June 2000 and the supplementary decisions by the Council of Finance Ministers of 27 November last year have, admittedly, brought us out of our offside position on the European taxation field, and under nationally acceptable conditions. They will, however, require a readiness to adapt on our part, and a talent for practical innovations on the part of the banks. In the coming months we will insist that the central conditions decided on in Feira in June and reaffirmed in Brussels in November are observed, which means that we will repeatedly call for the inclusion of the financial centres outside the EU in the overall plan. Everyone must realise, however, that if the international environment and the internal and external conditions are right, banking secrecy with respect to capital savings – and with respect only to them – will be abolished after 2010. It is not reasonable constantly to complain about the dependence of our national finances on the financial centre and at the same time struggle with all one’s might against the gradual movement out of this monolithic situation, which itself is not without risk. The financial centre can get along without banking secrecy provided that as it is abolished here, it is also eliminated in other countries. For the rest, the Luxembourg Government is a determined ally of all those who can and wish to conduct banking business in this country under better conditions than anywhere else. It will not, however, act as an accomplice to people who, because they cannot do that, exploit our financial centre and our good name in order to pursue their shady activities furtively and behind the protective wall of our laws. Disreputable banks harm the reputation of the country. We will defend, if we have to, those financial institutions that get into trouble on the international stage for no reason other than the envy and meanness of their and our competitors. We will not do anything – and why should we – to help those for whom their profit means everything and our country nothing. The European Council in Feira raised doubts in many people's minds about Luxembourg's chances of survival as a financial centre. But this did not end in despair, as the results from the financial centre demonstrate. However, we cannot simply forget about the constraint that the new direction in European tax policy imposes on our actions. The same is also true for the Nice European Council, with which the European year 2000 closed. The results from Nice tend to give us a good feeling: Luxembourg was able – not without effort and more – to rescue and retain its post-war rank in the larger Europe of tomorrow. Although individual neighbouring countries had set their steamrollers rumbling in our direction, we managed to escape being flattened. The steamrollers are now rusting on the beach between Nice and Antibes while Luxembourg is heading under full sail towards an expanded Europe, which will not stand under the exclusive command of the big guys but under the joint leadership of the small and the not so small. Nice opened up the institutional route towards expansion, thus reaching its main goal. If we had got stuck on the way to Nice or on the way back, then we would have risked delaying the growing together of European history and European geography for so long that the open windows of history would have closed again. Three cheers for Nice, but: we cannot let Nice be the closing chapter of the book of Europe. Some of its underpinnings are too weak for it to withstand the storms and stresses of the coming decades. Europe remains a complicated continent, even if – when looked at with the eyes of the

past – everything has become simpler. Our continent will become complicated all over again if we do not succeed in directing its fates through a single channel into which unrestrained nationalism can gain no entry. Faced with the future's brand of nationalism – not to be confused with the patriotism which moves forward alongside that of its neighbour, without any collisions – we must today knock away its feet, which might trample on others, and break its arms, which might inflict violence on others. We must now make European integration irreversible, eliminate all the spots where misconstrued national egocentricity could threaten the natural process of growing together. Between now until the end of the Intergovernmental Conference in 2004, we will have time to set the house of Europe on a totally sound footing. We must – Parliament and Government – mobilize our best energies for that purpose. The people living and governing in Europe in 2025 will not be able to accomplish this task if our generation has failed to do so. In 2025, the parameters and the frames of reference of government will be quite different from those of today: to those who were born and grew up after 1975, the figures whom we hate – Hitler, Stalin – and the figures whom we admire – Schuman, Monnet – will be just as remote as William II and Clemenceau are to us. In 2025, the reference point in governing will not be 1933, 1945 or 1968. We do not know what major turning point will be the reference. Perhaps, if everything goes well, the end of the Cold War or the introduction of the euro. But nothing is less sure than that. We are the last generation to know from our own experience or from the teaching of our parents what Europe is actually all about. And because we are the last to know it, we should let our knowledge flow into a well-defined set of relationships. Mr President, When we look back at last year, we encounter – between the Feira and Nice Summits – an event that most have not yet forgotten, that has left no uncertainty behind and which made us – sometimes directly and sometimes more indirectly – happy. I am speaking of 7 October 2000, the day of the accession to the throne of Grand Duke Henri. On that day we were all – Luxembourgers and non-Luxembourgers alike – at one, simply and uncomplicatedly, with our country and with ourselves. Grand-Duke Jean stepped down, and the people thanked him for making the affairs of our country the most important affair for him. They have a feeling that the new Grand Duke will perform his duties at the head of the country with the same seriousness and with fresh energy. The sympathy he, his wife and his children enjoy impressively demonstrates that Luxembourgers, over 80 years after the referendum, feel in harmony with the leading institution of the State. The succession was a day of joy and, as always, at the same time a day of thoughtfulness and reflection about our community, our country and ourselves. We were all individually and collectively renewed in the conviction that our nation, which is not yet so old, is not some temporary arrangement of history, but an institution that will endure. It expresses its desire for permanence not only, but also, through the ambitions, principles, standards and rules that the State lays down and maintains for it and in its name. A nation, if it wishes to exist in the long term with the consent of the people who make it up, cannot remain the way it always used to be. It has to renew its ambitions and refresh its principles. Social progress, progress in society – in the sense of moving forward, in agreement and in the greatest possible harmony – is not achieved through sudden movements, but through well thought-out bridge-building respecting the sensitivities of all different groups. Intolerance against others, radical or even brutal rejection of their customs and characteristics, the marginalization of minorities, who tomorrow may already be the majority, are

socio-political weapons which are not in accord with our time nor with us. Let me be clear, I am not calling for the unbounded anything-goes State for which all rules are suspect and all standards superfluous. I am calling for more respect, more tolerance, more understanding – in short for more humanity in our dealings with one another. Regulating people’s dealings with one another is one of the central tasks of the State and the legislature. In the coming months, the Government intends to propose a series of rules which, in particular, will amplify our civil law in such a way as to provide people, who live in our time but not precisely like the majority, with a description of their rights and responsibilities. Many people, women and men, men and men, women and women, live together without being married – some because they are not allowed to marry, others because they do not want to marry or do not want to marry yet. The State must respect whatever its citizens choose to do as individuals. It must not arbitrarily discriminate against people who choose one way rather than another and must not downgrade them by leaving them to all intents and purposes in a social vacuum devoid of rights and responsibilities. A government bill will attempt to clarify all the questions of civil and social law arising from the cohabitation of heterosexual and homosexual couples outside marriage. Our answers to these questions must take account of the fact that partners living together without being married are committed to and responsible for one another. Irrespective of whether or not they document their wish to live together in writing, the new legal instrument to be created must resolve a number of important questions to do with people living together. For example, it must lay down rules for protecting the shared accommodation and stipulate what the various partners must contribute to household costs. It must also provide for joint liability of the partners for repaying loans taken out for the purposes of the household or child-rearing, recognize the validity of contracts made between the partners and of gifts exchanged between them, create rights of inheritance between them, provide for the possibility of co-insurance of the partner, and deal with the fiscal consequences of these provisions. It may not, however, be possible to cover all of the fiscal consequences until we have introduced the option of individual taxation, as planned for 20052006. This is an option that we have to create for reasons of a properly understood policy of equality. Legislation of this kind on partnership outside marriage seems simple, but it is not. If it were so simple, the Government could have submitted a bill at the beginning of spring – as in fact it had intended to do. The poor show we have witnessed with the implementation of such laws in Belgium, France and Germany gives an indication of the complexity of the subject and initial evaluations reveal a significant need for improvement. In any event, the Chamber will receive a bill from the Minister of Justice in the coming months. I hope it will be possible for both the parliamentary and the public debates to be conducted in a spirit of respect and tolerance. The intention of the Government, and particularly the Minister of Justice, to give a new impetus to social reforms brings us also to amend a set of regulations having to do with names. Children born in wedlock nowadays automatically receive their surname from the father. What we intend for the future is that the parents should be able to choose to give their children either the father's or the mother's name. Clearly, all children from the same couple must have the same surname, and if the parents cannot agree on the child’s surname – which does seem to happen in countries where this choice is possible – then the law will have to lay down rules for assigning a name.

Children do not only have a name. They have above all a face, which brings hope to the world and joy to the family. But over and above this unique and intangible dimension, we must not overlook that families with children are materially less well-off than families with the same income but without children. Here, the State has to help make up the difference through family allowance. In 2000, the State spent more than LUF 20 billion on supporting families. When the second stage of the tax reform comes into force, on 1 January 2002, child allowance will be increased by LUF 1,000. This will cost a total of LUF 1.8 billion. I confirm in this connection what I said here last year. The Government will do what it can to increase the number of places at crèches and the number of places where children of school age can study, play and live outside school hours. Mr President, I was talking about children and their surnames. We talk of family wherever at least one adult shares joy and pain with children. We know that families are no strangers to pain. The pain for the children is particularly severe when families break apart because the parents separate or have to divorce. Our law has a form of divorce which is particularly harmful to children. This is fault-based divorce, known in French as "divorce pour faute". In this variant of divorce, the children are dragged even more into the debilitating battle over the parents’ separation, because they often have to side with one or the other parent. Both during the proceedings and after the divorce itself one can observe in the children concerned – and in the parents too, for that matter – very serious mental and emotional disturbances. The Minister of Justice will therefore be submitting a bill here in this House under which fault-based divorce will be abolished. He will, of course, at the same time propose a system which will take full account of the needs of the economically weaker ex-partner when the question of alimony is being settled. Marriage and living together, children and their names, divorce and its consequences: these are all questions that are intimately related with life, its opportunities, privileged moments and problems. However, none of these questions is as dramatic as the question of death. On 21 November 1996, we had our first debate in this House on questions concerning dying. Subsequently, Parliament set up a special committee on ethical questions, which submitted a report on 2 February 1999. This was debated in open session in March 1999. Neither the report by that committee nor the debate led to a clear and unanimous consensus. Many speakers pointed out – quite rightly – that the parties and the parliamentary groupings were not in a position to express a common view on the last questions of life. In this question, absolute priority was accorded to the Members' freedom of conscience. With the recent legalisation of active assistance to dying in the Netherlands, some people are calling for a broad debate on euthanasia in Luxembourg. Let me repeat: we had this debate a couple of years ago. But, I might add, a debate on death and dying is never over. Parliament itself said in 1999 that its work at that time was only one stage in a long process of reflection. I am in favour of reopening the debate. In this point we politicians agree with the general public: a person who is incurably ill should not have to suffer intensely for longer than necessary. Extraordinary treatment is incompatible with human dignity, which is why the Hospitals Act of

1998 also says in its Article 43 that the doctor responsible must avoid it. I do not think, however, that the public and we agree on all the other questions that arise alongside that of extraordinary treatment. “We must discuss these matters without a blinkered attitude, ideological barriers or preconceived opinions. It is a difficult question to which no simple answer can be given. Individuals must answer according to their own conscience. It is not a question that parties and parliamentary groupings can decide. ”This is what I said on behalf of the previous Government in my speech on the state of the nation in May 1997, and I say exactly the same now on behalf of this Government. And I would add: let us call a halt to the unworthy discussions of recent weeks which have pigeon-holed the partisans of the new Dutch law as "progressive" and branded those who have reservations as reactionary and behind the times. I do not condemn those who see the Dutch model as a possible course to adopt; parts, though certainly not all, of that law are worth thinking about. But I feel myself closer to those who hesitate because they cannot see all the consequences. That said, I am in favour of us embarking once again on a debate without prejudices. There must be room in this debate for opinions and convictions, generosity and fears. A debate must begin with respect for the views of the other party. It must also be able to end with it. The euthanasia question is too crucial for us to allow it to get swallowed up in the battle between the parties. Before we have our final discussions on helping people to die, however, we should first concentrate on help during the process of dying. There is still much that needs to be done in the area of palliative medicine in the hospital and at home. The Minister for the Family and the Minister for Health are currently considering our infrastructures for palliative care outside hospitals. All these questions form part of the discussion about dying. Mr President, Ladies and Gentlemen, The social challenges facing us go beyond the questions we have touched on so far. When it came into office, the Government said it wanted to give a more participatory touch to our zealous but frozen democracy. In fact, it needs to be more than a touch, more than a mere slap on the back. What we really want is democratic structural reforms that will put citizens, politics and the State in much closer contact with one another. We are waiting for Parliament's final decisions on the arrangements and procedures for the constitutional referendum – the referendum that can enable our sovereign to alter the country’s constitution. As soon as this has been achieved, we will submit to Parliament a law on the introduction of a "popular initiative" allowing a given number of voters – we were thinking of 10,000 – to submit a bill to Parliament, which would then be obliged to express an opinion on it. If Parliament rejected the bill, an even larger proportion of the voters could demand that a referendum be held. A democracy that intends to take a step in the direction of greater participation also needs, for its internal day-to-day operation, a citizens’ representative, a "Mediator," an ombudsman, or as we say in a not particularly happy formulation in our own language “de Knoutermann.” A bill on this has been drafted and examined by the Government Council. After consultations, including with the CGFP, it will be submitted to Parliament.

The “Knoutermann” – or “Knouterfra” – will be the person to receive complaints which the citizens wish to bring up in specific matters affecting them. Such complaints will have to do with actions by the national or local authorities, as the case may be, and by the administrations of the public utilities. The People’s Advocate, as the Spaniards call their ombudsman, will be attached to Parliament. Parliament will also elect him and he will be required to work with the parliamentary Petitions Committee. He will be independent of both Parliament and Government and his term of office, which will not be renewable, will be eight years. The ombudsman – or whatever we actually call this complaints office – will advise the complainant and the administration and will try to bring about an amicable solution to the dispute. However, he will not immediately bring out the big guns, and will not be there to play the bogeyman to the administrations. He will be first and foremost a facilitator and a go-between in situations of conflict. If he cannot resolve a dispute himself, he will submit proposals for a solution to the Petitions Committee. He will be entitled to make his recommendations public and every year will submit a report on his activities to a public session of Parliament. This report will also be discussed in plenary. The “Knoutermann” will have the legal right to initiate legislation, because he will certainly gather enough practical experience to find out whether the wheels of government are squeaking so much that they should be oiled. Parliament will establish his budget and that of his staff. As I said: this draft will be submitted to you shortly and you will then be able to examine it together with Madame Lydie Err’s bill. The two texts are not so different. Modernization of State and society is not possible without a consistent IT infrastructure. Work has been started on all the sites I announced last year in connection with E-Luxembourg. They are advancing at different rates. We are remaining on the ball and the people are with us. Last year, we had one computer for every 11 pupils; this year we have one for every nine. The project to put public administration almost entirely online by 2003 is moving ahead at full steam. The framework for UMTS licences has been set up. Internet connections have become cheaper during the year. We are making progress everywhere and are doing well in comparison with our neighbouring countries. But we are not yet in the first league. Our efforts will have to continue, then. Modernization of the State also includes reform of the staff regulations for civil servants. This reform will be ready for discussion at the end of June or the beginning of July. If the State is to be able to fulfil its tasks conscientiously, it needs a justice system that operates thoroughly and quickly. If our justice system is to operate more quickly, it needs more magistrates and more personnel. With an additional six magistrates appointed last year – bringing the total to 173 – the Minister of Justice intends to submit to you a five-year recruitment plan which will provide for engaging a further 21 magistrates and 28 officials. The SCAS, the “Central Service for Social Assistance”, will also gain seven more officials. Mr President, In a reform-oriented society there has to be balance on both the large and the small scale. This is particularly true in the world of work. It is often held – mainly by those who study and observe the world of work without themselves being a part of it – that there are no problems relating to work in Luxembourg because we have enough of it. And this much is true: the number of jobs grew by 14,000 or almost 6% in the year

2000 – more than ever before. At the same time, unemployment dropped by 7.2%. Last year, an average 2.6% of our population of working age were without a job. In 1998, the figure stood at 3.3%. Unemployment is continuing to drop this year: it was down by 5.7% in January, 7.1% in February, and 6.4% in March, bringing the level to 2.3%. Admittedly, there are some companies where jobs are declining, but overall the trend in unemployment is sharply downwards. In addition, the number of jobless who are participating in an active occupation programme is constantly growing, and with them the number of those getting a chance to make a new start in the labour market. While, then, it is true that we have the main problem, unemployment, under control, it is still not wrong to claim that our control of joblessness is not equal in all areas. Despite the expansion of the labour market, older employees – i.e. those over 45 – have greater difficulty in keeping their jobs or in finding new ones. We have come to a world of work in which only the young and the fully fit count. We have to take steps to counter this development. It is a grave error to exclude people with experience from the world of work. In the reform of the laws on disability, therefore, we are stressing the redeployment of employees who are no longer fully healthy, either within their present company or in a different one. This reform will not turn into a way of persecuting those who are really ill, but will provide a way of mobilizing those who can no longer do everything but can still do a lot. We want to modernize society, including the world of work. This will be demonstrated by the national employment programme for the year 2001, which the Minister for Labour will submit in the coming weeks. It is also demonstrated by the fact that Government is urging management and labour to reach joint proposals in the areas of part-time work and further training. But not everything that calls itself modernization is new. Sometimes, a future is offered to wage earners that is nothing other than a return to the past in a different guise. If individual representatives of the employers call for more deregulation and flexibility, their demand – if it was granted – would very quickly take us back to the prehistory of modern labour law. The people who work for salaries or wages have a justified claim to normal working conditions, which means long-term employment covered by insurance and subject to limits on hours. In Luxembourg, indefinite contracts still account for 88% of all jobs. This demonstrates one thing: deregulation is not running wild in Luxembourg, and this is how it will remain. If, in Europe and in Luxembourg, ever more voices are calling for companies to be given greater freedom of dismissal in the event of restructurings, this means nothing other than taking a step backward into precarious social anarchy. We have a law that gives employees a guarantee in the event of collective dismissals. In Luxembourg, dismissals by Marks & Spencer are subject to negotiations on a social plan. This guarantee of protection is not going to be removed from our law, and we are pleased the French Government now wishes to incorporate it into French law. Dialogue between the two sides of industry must play its role even in collective dismissals. This type of dialogue is not improved if one side of industry provokes the other by repeating demands when it is already known they are not up for discussion. The constant call for abolition of the index produces nothing but unnecessary social unrest. To put it bluntly – I simply do not listen when there is talk of abolishing the index. Under this Government, the index will not be meddled with or manipulated, and will not be abolished either.

If we wish to keep this social dialogue alive, we will sometimes have to give it a push if it is not starting on its own. This is the case for both the transport and hotel and restaurant sectors. In the latter sector, the Minister for Labour intends to submit proposals for a flexible introduction of the 40-hour week. Dialogue between the two sides of industry cannot be isolated from policies on collective agreement. The recent remarks by the ILO basically say nothing different from the Government’s own statement, namely that greater allowance should be made for sectoral representativeness. We will achieve that without restricting the scope of the nationally representative trade unions. Their scope for action has to be broad: only nationally representative trade unions will ensure our tradition of industrial peace will survive. Many foreign earners who come to Luxembourg originate from countries that habitually tackle their industrial disputes by means of strikes. Relying on dialogue also means relying on nationally representative trade unions. They are accustomed to taking responsibility, both for themselves and for society in general. Mr President, The right to work is not far away from the right to housing. The two are equally important. Our population is growing rapidly and with it, logically, the demand for housing. The situation on our housing market can be summed up in one simple sentence: in Luxembourg, not enough dwellings are being built, and those that are being built are too expensive. Prices for building plots and dwellings are constantly on the increase, while the number of building permits dropped by 25% in the year 2000. What we need here is vigorous action, and it is the Government's intention to take such action. Much of what is planned cannot be disclosed at present, however much one would like to talk about it. The housing market reacts between sensitively and hypersensitively, so any announcement leads very quickly to a blockage in building and to long waiting lists. Consequently, we have to make very thorough plans, announce them at the proper moment and implement them rapidly. Not enough building is going on. Consequently, the primary requirement is to increase the supply. Only if we are successful in increasing the supply will we succeed in stopping the price spiral in the building market. The seventh 5-year programme for housing construction has been increased to 5,243 dwellings. The eighth 5-year programme, which will be submitted as soon as the local authorities have been consulted, at the present planning stage provides for the construction of a further 4,125 dwellings, 1,700 of them rental property. It will involve an investment of 20 billion, 8.6 billion of which will be provided by the State. The Minister for Planning will ensure that up to 1 500 dwellings can be built as part of the redevelopment of the derelict industrial land in the Belval area at reasonable prices.

The Government intends gradually to put the building plots belonging to the State on to the housing market. It should be borne in mind, however, that this is not a particularly impressive amount of land. We know that the building perimeters laid down by the local authorities are sufficient to create enough residential space to provide shelter for a population that is twice as large as today’s. But many local authorities hesitate to start the actual building phase. Some do not want to grow because it is cosier to remain small. No good will come of that: if the population is growing there can’t be, there must not be, a virtual stop on building on the part of the local authorities. Others do wish to grow, but are unable to do so because they are unable to finance the costs which this growth brings in its wake: they cannot afford more roads, schools and other infrastructure items. Here is where action must be taken. State and local authorities have to share the responsibility that comes with building; one side has to help the other. We are of the opinion that the State should give greater financial support to those local authorities which do expand, by providing additional infrastructure, including in particular the construction of new schools. Negotiations on this are in hand with Syvicol. Every house that doesn’t get built because the State and the local authorities fail to take action increases the price of the house that does get built. We have to renovate more old houses. For that to happen, we have to eliminate the distinction between houses built before and after 1 September 1944 from the Rents Act, and at the same time redefine the concept of dwellings of the highest quality. Indeed, we have to improve the profitability of private investments in rented housing, including from a tax point of view, because without that we will not be able to get the supply to increase. The priority is to broaden the supply. However, that does not mean that we can neglect the demand side, in other words support for the people who are building. The Luxembourg State earns less from building than its neighbours, and that is how it should stay. I subsidise construction with an almost 12% VAT reimbursement. This measure will not – regardless of the rumours – be abolished. In order to catch up the delays in reimbursement, the tax authorities will be allocated extra staff next year for this specific purpose. Up to a certain level, Luxembourgers can offset the loan interest on their private home against their taxes. Last year, 50,000 people offset LUF 6 billion. Owing to the change in interest patterns, this measure is worth more today than it was in 1991, when it was introduced. It will be extended and not, as many have feared, abolished in the taxation reform for the year 2000. In July 1998, I asked the tax authorities to give consideration to a reduction in the recording and transcription charges levied when private homes are bought. Suggestions have been made by the administration, they are currently being studied and proposals for reduction will then be made. That will certainly help the people who are building a home. But achieving an increase in the supply on the housing market is the only way to ensure the money, which the State is relinquishing in this area, does not largely end up on the pockets of the building contractors and the owners of building land. We have now spoken of jobs and of housing. Very rarely is a person who has a job and housing at risk of falling into poverty or social exclusion. That is why jobs and housing are so preeminently important to social cohesion in our country.

Social cohesion is not as fragile and threatened in Luxembourg as in other countries. Nevertheless: about 12% of the population live in households with a low income. By Luxembourg’s standards, they are poor. They risk exclusion, particularly the 5% of them who have already been in that situation for more than three years. In its excellent report on the state of the nation, the Economic and Social Council has drawn attention to the phenomenon of exclusion for the second year in a row. And rightly so, because poverty and exclusion are not something which we have to accept as inevitable. Without any doubt, they are socio-politically explosive. The arsenal of the State’s weapons against exclusion has been thoroughly expanded over the course of the past few years. The introduction of the guaranteed minimum income, the reform of the legal assistance system, our participation in the costs of old-age care and the law modifying excessive indebtedness are the most recent additions. These laws must be examined and re-examined constantly, and this is happening. The Minister for Families is currently involved in adapting the law on the guaranteed minimum income with the aim of creating a partial response to the so-called starvation-level pension. We are considering guaranteeing professional income and subsidiary income up to 30% of the guaranteed minimum income for a household. Furthermore, houses of recipients of the guaranteed minimum income should be protected at the level of the average price of a residence built by the Social Building Fund. With respect to the guaranteed minimum income, it can generally be said that it was not created in order that those who benefit from it, and are of working age, should do so all their lives. The guaranteed minimum income is intended primarily to be bridging assistance for those people who are without any other income. This income is not intended to be a long-term solution for anyone, but a springboard back into society. That is why the law also provides for the possibility of putting recipients of the guaranteed minimum income to work, and if necessary compelling them to work. It must unfortunately be noted that it is almost exclusively the state and local authority undertakings, and quite often non-profit associations also, which offer job opportunities to the recipients of the guaranteed minimum income. Private companies are highly reluctant to employ these people, who are quite capable of working. I appeal once again to the employers and the trade unions to offer these people job opportunities under the collective agreement. Otherwise they will remain stucked at the guaranteed minimum income and in chronic poverty. We must not forget that poverty can propagate itself: the person who never saw his father or mother go out to work will have a lot of difficulty in dealing with working life himself. The disabled have greater difficulties in life and work than people without such handicaps. They can slip extremely easily into poverty and exclusion. The Minister for Families will shortly submit a law to improve the income situation of the disabled. This improvement will give them the security and economic independence they need to ensure their social integration and make their personal independence more secure. The new law will initially improve the situation of the disabled who are working in a sheltered workshop. They will receive a proper formal work contract - that is a question of dignity, because they are working just like other people. In future they will receive the minimum wage – the second is a logical consequence of the first. Since the sheltered workshops will hardly be able to pay these wages themselves, the State will have to take over paying up to 100% of them.

The new law will also regulate the income situation of those disabled people who are too severely handicapped to be able to work at all. Many of them are dependent today on the help of their family or that of the welfare office of the local authority where they live. In future they will receive an income guaranteed by the State, equivalent to the guaranteed minimum income, but without being required to meet all of the normal conditions for the granting of that income. The condition of a society can be measured by the way it treats its disabled citizens. The new law will improve our image.

Mr President, Not all of the problems that are socio-politically relevant cause turmoil in society. But in recent years and, particularly, in recent months a problem has arisen which is making the whole of society agitated and uneasy: the problem of the safety of our food. Food safety has become a genuine socio-political problem because it raises doubts about many things and will be the origin of many changes. The causes of the present food crisis can be discussed and speculated on for hours. One thing is certain - the BSE disease is the result of an unrestrained focus on profit and an excessive frenzy to deregulate. It is too simple to lay the blame on the farmers and agriculture. Not only is it too simple, it is plain wrong. The individual farmer is not the main perpetrator but the main victim of the current crisis. For him, it is a financial crisis and, for his farm, a question of survival. Therefore, we must not leave the farmer in the lurch. In the past few years we have not been doing so - from 1994 to 2000, the direct income assistance to Luxembourg’s agriculture increased by 62%, from LUF 1.2 billion to LUF 1.9 billion. This in not a new question: how must modern agriculture be arranged in order to ensure its own continued existence and to guarantee food safety to the consumer? At present, we are hearing one particular answer suggested from many quarters, but it is only a partial solution: bio-agriculture is being put forward as the miracle answer to the food crisis. There is no question that we have to move more in the direction of genetically engineered agriculture. And we do want more bio-farms here in Luxembourg. But we cannot dictate to our agriculture that it absolutely has to take the genetically modified route. Our farmers cannot change over from conventional agriculture to genetic engineering methods at the drop of a hat. That is not possible. The Government intends to make major efforts to increase the number of biofarms by 5-10% over the next few years. But conventional agriculture will remain predominant. Since that is the case, and because the consumer has a right to safety in the foodstuffs coming from conventional agriculture, we therefore have to strive towards a double policy: promote bioagriculture on the one hand, ensure the food safety of conventional agriculture on the other. Many years ago now, Luxembourg began to recognize and recompense the farmer’s work in the preservation of the countryside. A farm which receives the agricultural premium payment has to fulfil a whole series of environmental requirements. It has to abandon many production methods

that used to be common practice. 90% of the farms are participating today in the wide-ranging environmental programme. The State finances the programme to the amount of almost LUF 400 million, just as it makes assistance payments for biodiversity. The payment of the compensatory allowance, which for the year 2001 has been increased to LUF 600 million, will be linked in future to observation of a number of environmental conditions. Conventional agriculture, too, is acting with more regard to the environment than before. It, too, is obliged to follow appropriate methods of livestock farming. It, too, is consumer-oriented. It could work better and more profitably if consumers were primarily to buy the products of their own country instead of – as too many consumers have been doing until very recently – dashing after every cheap offer in the big shops. A highly effective identification and tracking system for beef was set up Luxembourg even before the BSE and foot-and-mouth crises. For years, we have had a consistent quality labelling policy, which we are now expanding even further. Labelling to track the movements of meat from the stall to the table has been made compulsory. Hazardous material in the beef and veal products has been rigorously eliminated for many years. Feeding of animal products to livestock is forbidden in Luxembourg without time limit. Our domestic foodstuffs are safer, are checked more effectively and by more people than in the past and, in consequence, should also be purchased. The State itself must set a good example: it must consistently offer Luxembourgish quality products in its own facilities, hospitals, old people’s homes and schools and give better financial support to the marketing efforts of Luxembourg’s producers. Going back to bio-agriculture: this represents only a small portion of our agriculture, but is being promoted more and more. A bio-farm, like the conventional farms, receives the agricultural premium payment and the compensatory allowance. A farm of 70 ha, which converts to genetic engineering methods, will receive State assistance of LUF 1.2 million a year during the 3-year conversion phase. And all of this will give our agriculture two ways of moving forward: a bio-way and a conventional way. Only thus can our agriculture continue to progress. It cannot grow with only one way of advancing. But regardless of which method it uses to advance: the consumer must feel confident that what he is eating can be eaten without risk to his health. We must think of agriculture from the standpoint of the food counter and of consumer protection from the standpoint of the cattle-stall. Mr President, Ladies and Gentlemen, This situation of the country is like a mosaic to which everyone living in the country contributes his or her own little stone. If I was to take all the stones which make up the mosaic of the country, lift them up, turn them round, hold them up in the air and then put them back, I would be talking about the state of the nation and describing the mosaic for another two weeks. And you would be tied up for that length of time too. For that reason, I only picked up the pieces to which we have to pay the closest attention in order for the mosaic to remain undisturbed and to keep its beautiful appearance. To the greatest extent, we have created this mosaic ourselves. But those who live

close around us, and those who live further away, have also played a part in making it. Consequently, in addition to the state of our own nation we also have to look at how things are developing in Europe and the rest of the world. In recent weeks, so many economic forecasts and analyses from the International Monetary Fund, the European Commission and STATEC have been published and discussed that I will not be so presumptuous as to overload you with all those figures yet again. You know the material, you have studied it intensively. But to understand what type of year we are emerging from, what type of year we are in and what kind of year is ahead of us, there is a need, nevertheless, to mention a few vital figures. Worldwide, the economy grew by 4.8% in the year 2000. In America, the economy expanded by 5%. The European economic performance, with a growth of 3.4% in the year 2000, was markedly stronger than in the preceding years. In our country, the economy grew exceptionally strongly, namely by 8.5%. The year 2001 already looks quite different. As of today, we have to assume that economic growth worldwide will drop to 3.2%. American growth will see a serious setback in the year 2001: it will amount to no more than 1.6%. In Europe, too, the prospects for growth have deteriorated compared with 2000. According to the most recent estimates from the European Commission, growth will be 2.8%. In particular, the growth drop in Germany is causing concern to all observers. Here in Luxembourg, we are assuming that our national growth in the year 2001 will be about 3% lower than that of the year 2000. We think that the growth of our economy for 2001, as it was for 2000, will be just slightly over 5%. The employment situation in America deteriorated at the beginning of the year. Employment in Europe in 2000 trended in the right direction. Expansion on Luxembourg’s labour market was particularly marked in 2000: the total number of jobs in our country increased by nearly 6%. We are assuming that employment here in our country will once again increase by 5.1% in the course of the year 2001. The most worrying thing last year in Luxembourg was the severe increase in inflation. In 1998, it was 0.4%. In 1999, it increased to 2.4%, and in 2000 it made another big leap upwards, to 3.5%. Thus, Luxembourg was among the countries in the euro-currency zone in which inflation increased the most dramatically. Even if oil prices and energy are excluded, inflation still increased, although to an extent that remained under control. We can observe with satisfaction that inflation is now on the way down again. In the first quarter of 2001, it was just 2.9% as against 3.5% in the last quarter of 2000. This gives the lie to all those who had maintained that the entry into force of the first stage of the taxation reform, starting on 1 January 2001, would result in an increase in inflation. The contrary is happening. But we must remain vigilant. The extraordinarily good performance of the Luxembourg economy in 2000 also explains why the budget for that year concluded with a solid surplus. The Budget Minister will communicate the precise figures in the coming weeks, once the final and accurate numbers are known. Already now it is possible to say that a number of items of the State’s revenue made exceptional jumps by comparison with the forecasts we submitted in June 1999. These increases in revenue

can be explained, as I have already said, by the unusually good economic performance in 2000, measured both nationally and internationally. Last year, we took in LUF 40.7 billion in corporate taxes, resulting in LUF 2.7 billion more than had been provided for in the budget for 2000. This surplus can be explained first and foremost, or even exclusively, by the successful year which the banks had. As for personal income tax, we received in 2000 about LUF 47 billion. That is LUF 3.9 billion more than planned. These additional revenues can be explained primarily by the 6-percent expansion in the labour market and, in addition, by the wage and salary adjustments which were higher in 2000 than in previous years. In 2000, the capital duty on funds accounted for LUF 18.9 billion. That is LUF 7.2 billion more than originally forecast. This increase is the result of almost irrational occurrences on the stock market and does not have anything structural about it. The registration fees and, in particular, the capital duty amounted to LUF 8.5 billion, bringing in 3 billion more than was received in July 1999. VAT in 2000 showed strong growth, contributing LUF 39.2 billion to the State’s coffers. That is LUF 6.7 billion more than the budget for 2000 had shown. This increase is explained not only by the consumption of the Luxembourgers themselves, but also by the increased number of consumers, the effects of the economic growth and the increase in wages and salaries. There was also a marginal effect from the increase in prices for oil products. At LUF 28 billion, the joint excise duty revenues which are allocated to us as a partner in the BLEU, are LUF 4.8 billion higher than the Belgian and the Luxembourg governments had estimated in July 1999. The explanation for this increase is easy to find: it’s in the petrol tank. These figures and the explanations I have given lead to this conclusion: budgetary and fiscal policy can hardly be based on such exceptionally unnatural developments. If we were to do so, we could be in for an unpleasant surprise in 2002 and 2003. Nothing frightens a Minister of Finance more than the thought of a budget, which balanced at the beginning of the year, being impossible to balance at the end of the year. A Minister of Finance who knows his trade hates deficit. Nothing, on the other hand, makes him happier than a budget that makes financially correct provision for all essential State expenditures and can still be concluded with a surplus at the end of the year. In Luxembourg, in the past ten years, we have never had a deficit, but always a surplus. In other countries, a Minister of Finance would be praised for such an achievement. Not in Luxembourg, however. Here, he is criticized for it. We are a strange country. We did not undertake the first stage of the taxation reform in 2001 because we had surpluses in 2000. The previous years’, and this year’s, economic, budgetary and fiscal policies were indeed the correct ones. We are not implementing the second stage of the taxation reform that enters into force on 1 January next year because we had surpluses in the year 2000, but because social, economic and incomes policy reasons argue in favour of it. The point is to divide and distribute the growth dividends correctly. Both by looking back towards what the people have achieved and looking forward to the financial needs that await us. Our State finances are thoroughly healthy. That causes some people, indeed all people, to say the State is swimming in money. I am not going to claim here that we are down to our last pennies. But I am going to warn against drawing hasty and radical conclusions. If you carefully study the

increased State revenues of last year, you will see immediately that the bulk of the surplus is accounted for by the taxes which relate to the activities of the financial centre. There is simply no guarantee that this trend is going to continue uninterrupted. The State is swimming in money, it is said. However, we also have to be aware that the State is swimming in firm commitments it has undertaken: in the coming years, we have to undertake investments of over LUF 150 billion – for the construction of new roads, new hospitals, new schools and in many other areas. The money we have will be applied to these projects. The investment policy we finance with regular and extraordinary budget revenues will be used to prepare the immediate and medium-term future. We are not going to throw away the extra money that we have gained because of the favourable economic circumstances. We are going to invest it in the collective needs of our country. The State is swimming in money, it is said. We are better off than others. But we must be aware that in the coming years – and there is no escaping this - we have to pay back more than LUF 37 billion on our debt. We have taken on far less debt than our neighbours. We must repay the debts we have. If we simply compare the costs of the investments which have been definitely decided on, plus the amount we have to repay on our debt - a total of LUF 180 billion – with the surpluses we have achieved, the following immediately becomes evident: we are not swimming in money but we have enough money to meet our obligations and to fulfil our duties with respect to our children, the sick and the elderly. That is why our motto in coming years has to be: plan carefully, act for the long term, think structurally and steer through the economy. With all due caution: the darker clouds in the international economic sky do not compel us to make drastic changes in the general lines of our policies. While our economic growth is slowing down, it is still moving forward at a very high level. Our economy is growing more slowly – and there are also benefits in that – but it is not cooling down as much as the economies of our neighbours. Our exports to America account for only 1.3% of our gross domestic product. We are not suffering from the downturn in the US as badly as other European countries where those exports amount to as much as 10%. However, the possibility cannot be excluded that some so-called knock-on effects may occur: the parent companies of American subsidiaries in Luxembourg may well eliminate investments around the world, including in Luxembourg, because they are doing badly at home. When I say that no policy revision is necessary, that applies most particularly to sectors where we could not make savings even if we did have to change our policies: in education, in higher education, in culture, in research and in our environmental policies. It has often been said: the only raw material that we have in Luxembourg is our own “grey matter.” We have to invest constantly in the development of this unique resource. Firstly, we have to ensure that children receive the elementary knowledge which is the basis on which more can be built later. This means that the wave of reform has to reach the primary schools first. The first and second school years will in the future be considered as a single cycle.

Depending on their abilities and their aptitudes, children will be able to complete it in one, two or three years. Secondly, we have to adapt our education system to the evolution in the labour market and in society. Reform of the upper segment of secondary education is under way. The main subject areas of secondary technical education are being updated. Adaptation of the training for electrical and mechanical trades is also in progress. Certain individual areas of craft training are being modernized. Thirdly, we must ensure that continual learning, throughout life, is a fundamental habit of our people. Much has already been done in this sector. There still remains a lot to do. And fourthly, we have to get our young people used to the computer. At the present time, we have about 3,000 computers in our schools above the primary level. That number has to increase to reach one computer for every eight pupils. It is evident that the invasion of the information and communication technologies into our schools makes it necessary to employ a sufficiently large number of technical personnel to provide the management and maintenance of all the computer equipment installed in our schools. The computer will become a normal working tool in our schools. Trials are already in hand on using it in the teaching of French, chemistry, physics and geography. Starting with the beginning of the school year 2000/2001, we will be introducing the “electronic school satchel” as a pilot experiment in one building in the post-primary segment. All pupils in this building will learn to use the computer and how to access the network. I do not need to remind anyone that the current demographic explosion compels us to plan for an adequate number of schools and classrooms. In total, we have to build six new high schools. Under our sector plans for the high school segment, we have taken initial decisions on where they should be located. The administrative procedures for building a high school in the industrial area at Arbed-Belval and in the Redange area have been initiated. The high school in Redange must also be accompanied by a public boarding school. Thus, much is being invested in public schools. But we must also provide greater support to the private schools in the areas of infrastructure and operating costs. This applies both to the Luxembourgish private schools and to the international schools that we have in our country. Further reforms that are in preparation have to do with the Schools Act of 1912, the law on “differentiated education”, the “preparatory system” and the lower cycle of secondary technical education, the reinvigoration of civics and sociological education as well as the establishment of a pool of replacement teachers. Higher education is a relatively new policy area in Luxembourg. But it is an area of public responsibility that is gaining in importance all the time. Luxembourg has to establish itself on the academic map of the wider region and of Europe. The budget for 2001 provides about LUF 1.5 billion for higher education. That is 17.19% more than in 2000, in which the amounts set aside had already been increased by 15.96%. Today, we are spending about half a billion more on higher education than we did two years ago. This coming 20 and 21 June will see here in Luxembourg the first conference on the foundation of the “European University Foundation Campus Europa”. Universities from all over Europe will be

part of this institution centred in Luxembourg. Together with the University of Kaiserslautern, we are currently working out plans for a virtual Euro-University. This virtual university will bring together universities from the wider region. Students at a university in the region will be able to enrol at this virtual university at the same time. Another institution that will be founded is the “Luxembourg School of Finance”. This is being created on the basis of a cooperative undertaking between the ABBL and the Ministry for Higher Education. The City University, London, was selected as our partner for the design of the teaching and research modules. The Higher Education Act of 1996 will be reformed. The intention is to create a uniform structure, grouping together the various institutions we already know. Proper faculties are going to be created. There will be a faculty of Law and Economics, a faculty of Science and Technology, a faculty of Literature and Humanities and a faculty of Education. A number of specialized institutes can be attached to these faculties. The “Luxembourg School of Finance”, for example, will be attached to the faculty of Law and Economics. The preparatory work for the creation of the “Luxembourg School of Advanced Information Technology”, which will be attached to the faculty of Science and Technology, has already began. Research will become a permanent feature of our policy in this area. The State research budget today amounts to 0.17% of our GDP. If we wish to keep up, we have to provide more public funds to research. The multi-year research programmes, that are already in progress or are in preparation, bring genuine returns to our national economy. International scientific and technological cooperation is extremely important. We have concluded a cooperation agreement with the European Space Agency. Luxembourg is close to joining the European Molecular Biology Conference. The national research fund is currently taking the necessary administrative steps in order to join the European Science Foundation. Hardly anyone noticed that, for the first time in our financial history, the budget for 2000 set aside a percentage of its total amount for cultural affairs. We intend to continue this effort. I know: not everyone is immediately in favour of setting aside large sums of money for culture. Art and culture often go their own way. Not everyone can go that way, or wants to. However: there can be no art dictated by the State. Environmental policy is a political priority that has to become even more significant. The global warming is the greatest problem facing the future of the world. All long-term forecasts - and I hope that long-term forecasts are permissible in the area of climate change, as their justification is often questioned in the financial arena - indicate that the average temperature this century will increase by between 1.5 and 6 degrees Celsius. The warming of the atmosphere will result in the melting of the polar ice and a rise of the sea level. It will have irreversible and catastrophic consequences for our ecosystems, for the world economy and for the world’s population. Stabilization of the concentration of greenhouse gases and reduction in the emissions of CO2 are slowly but surely becoming a question of survival. A policy that does not concern itself with these fundamental questions for the future is a policy without any long-term moral foundation. 1997 saw the establishment of the Kyoto Protocol, in which States made concrete commitments, with real numbers, to reduce CO2 emissions by the years 2008/2012. Luxembourg has signed on for an ambitious objective: we intend to reduce CO2 emissions by 28%. It is extremely regrettable that the new American administration intends to withdraw from the Kyoto mechanism. But that must not

prevent the Europeans, and Luxembourg, from ratifying the Kyoto Protocol. The draft law on this subject has already been submitted to Parliament. We would be very pleased if you could approve it before the end of the year. The Government is currently creating a comprehensive national strategy for the reduction of CO2 emissions. The main stress will be placed on production of energy from renewable sources. We intend to make determined use of renewable energy such as, for example, solar energy, wind power or biomass. It may be estimated that renewable energy can potentially account for 5-7% of national energy production. We will support private individuals if they invest in these forms of energy. The State will take over 50% of the cost of photovoltaic installations. Private individuals, companies and local authorities will receive an incentive payment for energy produced by alternative methods and supplied to the national grid. For the private individual, this will amount to LUF 25 per kilowatt-hour. That is five francs more than the subsidy that is paid in Germany for this purpose. If this payment scheme should be rejected by the Commission in Brussels – initial contacts with Brussels do not indicate that this will be the case – then this subsidy would be redirected to some form of instrument having an impact on the price of electricity. The measures that have been decided on will cost about LUF 100 million in 2001. However, alternative energy production cannot be left to private individuals alone. The State and the local authorities have to set the pace and must take the new production technologies into account in all their construction projects. Another important aspect in the fight against CO2 emissions consists in saving energy and in the rational consumption of energy. It is generally assumed that in the traditional housing construction sector there is an energy savings potential of 30-40% per dwelling. This explains why the Environment Minister intends to take consistent action in this important sector from 2002 onwards. A grand-ducal regulation will be prepared covering a system to provide for State assistance in the establishment of an energy plan in private houses. The various improvements undertaken on the basis of this will be supported by the State. The budget for 2002 will set aside a substantial amount for this target area of our future energy policy. Even if we were not doing so well at the moment, economically and financially, in one particular sector we still could not make misguided savings, i.e. the hospital sector. A new hospital plan will come into effect. This has already found its way into our official gazette, the Memorial, which it reached by the same route as its predecessor. It will result in an improvement of the quality of the health services. This improvement will be achieved, among other things, by concentrating certain areas of expertise in various hospital centres. It will play a role in making our hospitals more comfortable by, among other factors, increasing the number of singlebed rooms. Raising the number of single-bed rooms will not cause the total number of hospital beds to be reduced in the longer term. The new hospital plan guarantees that there will be five beds for every thousand inhabitants. We did not want to go as far as the Dutch, who are providing for only 3.8 beds per thousand inhabitants. If our population continues to grow at the same rate as in recent years, then the application of the 5-bed per thousand ratio will result in an increase in the number of beds running parallel to the increase in the population. I vouch for that. And so does the Minister of Health. The favourable financial situation of the State also allows it to implement an ambitious policy in the public building and transport sectors.

The Saar motorway is intended to be ready at the beginning of 2003. This will help make the wider region a more cohesive area. Work on the northern highway is proceeding. When that is completed, it will be possible to drive from Luxembourg City to Friedhaff without going through any towns or villages. Completion of this road is indispensable to the economic development of the North and for improving the life of the people who live along the line of the road. Improving the quality of life of the inhabitants is also the main aim in the construction of additional bypasses around our towns and villages, particularly in the west of the country. As far as erection of buildings is concerned, the Building Minister will shortly submit proposals to you on how we can accelerate the procedure relating to the construction of large infrastructure projects, new schools in particular. Together with others, we have ambitious plans for the wider region. If it is to establish itself on the map of the European regions, one of the things it needs is an excellent transport network. But it is not intended that this transport should only be on the roads. It also has to give a chance to public passenger transport. We have agreed with the President of the “Région Lorraine” to extend the Dudelange rail connection as far as Volmerange-les-Mines and to install a Park-and-Ride car park. An identical infrastructure will be created on the French side of Arbed-Belval. There are similar projects for the Ibéng area. We will have to convince a maximum of border-crossing travellers to use public transport. And within the country, too, the availability of public transport is to be expanded. For this purpose, an autonomous management structure is being created, that is intended to organize public passenger transport and regulate dealings with the operators in the form of a “public service contract.” For the same purpose, new vehicles will be purchased meeting all requirements as to comfort and quality. And for the same purpose again, the design studies for a rail link from Kirchberg via Findel and Senningerberg are being finalized. Furthermore, a transport concept for the South of the country is being prepared. And finally, a doubling of the railway track between Luxembourg and Bettembourg is being studied. Mr. President, Ladies and Gentlemen, When we discuss the state of the nation next year, the final, physical introduction of the euro will be a few months behind us. As of 1 January, Luxembourgers along with Europeans from 11 other countries will be able to purchase using with euros and they will receive their pay-cheques and their pensions in euros. Of course, the euro has already existed since 1 January 1999. But its real birth certificate will be dated 1 January 2002, when euro banknotes and euro coins arrive in our wallets and our pockets. This exceptional, indeed unique, political and monetary occurrence will demand an equally exceptional effort of preparation on the part of the State, business and the people. The Government has been working on the specific preparations for the introduction of the euro for three years. Already today, the administration settles its accounts with people in francs and in euros. We submitted a draft law a few months ago to provide for about 600 “round figures”, for example for the tax rebates, for purposes of converting into euros. In every case, the conversion has been done to the benefit of the individual citizen. We are the only European country that has submitted its budget for 2001 exclusively in euros.

The Government knows that the transition to the euro will be successful only if everyone involved on the economic stage contributes actively to its introduction. We did not want to regulate from the top down all the questions which will arise from the introduction of the euro. Right from the start, we have been relying on active cooperation with all economic actors. At the initiative of the Government, a few weeks ago an agreement was signed by the business people, the banks, the consumers and the trade unions on the introduction of the euro. The production of the banknotes and the coins – for Luxembourg that means 46 million banknotes and 120 million coins – will be completed by the summer. There will be no problem in supplying the new notes and coins to the banks and businesses in the autumn. The legal rules and practical provisions intended to frame the transition to the euro have been put in place, for example the conversion without charge of banknotes and coins starting on 1 January 2002. Between 1 January and 28 February 2002, the euro and the franc will circulate side-by-side. After 1 March 2002, the euro will be the only currency accepted. This long-drawn-out transition period will make for a conversion from the franc to the euro without panic and without confusion. During the conversion period and when the banks and businesses are being supplied with the new money, considerations of safety dictate that we will have a strong police presence in locations at risk. Many companies have prepared themselves well for the transition to the euro. I would urge those who are not so far advanced, particularly the small and medium-sized businesses, to start with their preparations as quickly as possible, as otherwise there will be serious inconvenience for them and their clients at the beginning of 2002. But also the individual citizens have to be aware that they have to prepare for the new currency. Now is the time to start memorizing everyday prices in euros. Now is the time to start reading the pay and pension statements, or the savings accounts, in euros. Those who prepare inadequately or do not obtain adequate information risk being monetarily out of step at the beginning of next year. The Government and the Central Bank will be using the final months of this year to inform the public - that means all of us - through the media and in the schools about all the practical aspects of the introduction of the euro. The introduction of a new currency is no simple matter. Particularly not at the beginning. But once we have become used to it we will see: the euro will make our lives easier. The introduction of the euro will take place at the same time as the entry into effect of the second stage of the reform of taxation on private individuals. Mr President, Ladies and Gentlemen, On 1 January this year, the first step of the tax reform came into force leading to substantial tax relief. This spring, we can record that the first step of the tax reform, the increase of the minimum wage and pensions and the more dynamic wage policy by the State and private sector have led to a solid strengthening of buying power in Luxembourg. The preliminary works for the second phase of the tax reform for private individuals have been concluded. The Government intends to introduce a bill before the summer holidays, thus allowing enough time for the final parliamentary talks before the end of the year. In anticipation of this bill, I would like to shortly examine the standards of the second tax relief phase.

For the year 2002, we propose a tax scale that proves more advantageous than the one we announced last year. This tax scale features a marginal tax rate of 8% – not 10% as was originally planned – and a top marginal rate of 38%. As next year’s tax scale will have to be denominated in euros and we plan to carry out the euro conversion in favour of the taxpayer, the tax-exemption limit will increase from LUF 390,000 to 393,314 against the tariff of 2001. This means a bachelor only pays taxes from a taxable amount of LUF 393,314 onwards. Furthermore, a married couple will not have to pay taxes up to a taxable income of LUF 786,628. Consequently, within ten years, the tax-free limit will be increased from LUF 174,000 to 293,314 for bachelors and from LUF 248,000 to 786,628 for a married couple. In no other European country is the low income subject to such a low tax than in Luxembourg. In no other European country do low wages enjoy such low tax privileges than in the Grand Duchy. No other European tax scale is as social as Luxembourg’s. In Belgium, a bachelor pays 25% taxes on an income of LUF 213,000. In France, he pays 15.1% taxes from LUF 280,000 onwards and in Germany 15% from LUF 300,000 onwards. Low wage earners and young families in Germany, France and Belgium would welcome a tax scale similar to Luxembourg’s. The tariff for 2002 features a regular tax bracket of LUF 65,560 with a growth rate of 2%. A bachelor pays a top marginal rate of 38% from a taxable income of LUF 1,391,727 onwards and a married couple pays a top marginal rate from a taxable income of LUF 2,793,454 onwards. The tax scale we propose for the year 2002 will reduce the tax burden by LUF 17 billion compared with 2000. If we applied the tax scale of the year 2000 for 2001 and 2002, Luxembourgers would have to pay a further LUF 25 billion in taxes until the end of 2002. In this context it is important to point out that the tax scale does not apply only to private individuals, but also to the majority of medium-sized companies. A few examples show the importance of tax cuts. In 2002, a bachelor with a taxable income of LUF 700,000 will pay LUF 38,542 less in taxes compared with 2000. His tax load will fall by 51.9%. Furthermore, his average tax rate will be halved to a mere 5.1%. A bachelor with a taxable income of LUF 1,000,000 will gain LUF 64,746 in taxes. This amounts to a 39.8% drop and a decrease in his average taxation by 6.48%. This means he pays only 9.78% in taxes for the year 2002. A bachelor earning LUF 1,500,000 will gain LUF 103,585 in taxes compared with 2000, amounting to a 48.4% decline. He will pay only 17.39% in taxes instead of 24.9%. A single parent earning LUF 700,000 will pay no more taxes from 2002 onwards and, therefore, will have a further LUF 24,540 at his disposal. A single parent earning LUF 1,000,000 will have to pay LUF 75,803 less in taxes compared with 2000. This amounts to a fiscal reduction of 66.7%, and he will have to pay only 3.79% in taxes instead of 11.37%. In 2002, a single parent with an income of LUF 1,500,000 will earn a further LUF 118,586 after tax deduction, as his taxes will fall by 35.5%. His average tax rate will decrease from 22.25% to 14.36%.

From 2002, a married couple with a taxable income of LUF 700,000 will no longer be liable to taxes. In 2002, a married couple with a taxable income of LUF 1,000,000 will gain LUF 41,525 in taxes, amounting to a 69% cut. Their average tax rate will decrease from 6.02% to 1.87%. A married couple paying taxes on an income of LUF 1,500,000 will benefit from a tax deduction of LUF 86,130 compared with 2000. This amounts to a decrease of 49.3% and their average tax rate will be halved from 11.64% to 5.90%. A married couple, with two children and subject to taxes on an income of LUF 1,500,000, will benefit from a tax reduction of LUF 86,130. This is 83.9% less than at present and their average tax rate will fall from 6.84% to 1.1%. These examples point to the social aspect of the tax scale for the year 2002, which is kind to low wage earners. Furthermore, it enables young families to have enough money when required, it is performance friendly and has a substantial effect on income increments. Before drawing up the tax scale for the year 2002, the Government made a critical study of the existing allowances. We came to the conclusion that all allowances but one should remain in operation. They have all proved of a high control character, which remains important. We will let the allowance regarding investments for moveable assets slowly run out in one process, which will last a few years. This will be achieved in close consultation with the economic sector concerned. On the other hand, the sum that can be deducted from tax to invest in a private pension will be increased from LUF 48,000 to 70,000, or EUR 1,750. This allowance will rise to LUF 130,000 for wage earners from the private sector and civil servants or self-employed people who start to invest in a supplementary pension later in life. Unlike today, the saved capital can be paid up to half in the form of capital and thus represents a fiscal incentive to save. The deductible standard tax rate, which we apply in the framework of the second aspect to the supplementary pension, will be cut from 25% to 20%. These two measures represent the contribution of the tax policy towards the solution to part of the pension problem. The announced tax reform for companies remains unchanged and will come into force on 1 January 2002 as planned. Last options are being discussed between the Minister for Finance and the Minister for the Economy. The Government will propose to reduce the average taxation for companies from 37.40% to 30%. How this 30% will be put together will be decided following final discussions regarding trade-tax problems. The tax reform for companies is not limited to reducing the average tax rate. Article 152bis) on fiscal allowances for investments will be updated. The fiscal allowance will be distributed on the intangible assets to meet, among other things, the needs of the new economy. Article 164bis) on the Income Tax Law regarding organizations will be enlarged and made more flexible. The same applies to the measures concerning participation exemption rules. Our tax environment will look much better once we have carried out these tax reforms for private individuals and companies, on a national as well as an international scale. However, reflections on

tax policy must also continue thereafter. I have already told you that we intend to introduce the possibility of individual taxation in 2005/2006. The Government has entrusted the Economic and Social Council with drawing up a detailed recommendation concerning all aspects of the negative income tax. The question of the negative income tax is still up for discussion. It is an important factor for making the fiscal and social policy into a generous, reasonable, social and serious instrument of justice. We are considering merging the fiscal and registration administration to make tax collection more effective, improve the conditions for combating tax evasion and be able to use human resources more efficiently in the State. Preparation of this plan is about to begin. Mr President, Ladies and Gentlemen, This year’s statement on our nation’s situation is once again too long. Some things I have reflected on today have already been mentioned in the past few years, in the same or some other aspect. The nation’s situation is similar to the countryside – it does not change from one moment to the other. As a result, descriptions resemble each other from year to year. The walk through this countryside was a long one but it did not lead us to all the places we should have visited. I had to make an effort not to mention pensions this year. However, it would have been useful, if only to counteract all the deceit and lies that have systematically been spread over the past months, especially the past few days. But this would have brought us no further. People are fed up with the pension quarrel. They want us to solve the problem. When you read the Government programme or the parties’ electoral manifestos, you will see that nobody has ever claimed the pension scheme should remain unchanged. As a result, I am not surprised by the many unexpected events that occurred during the pension debate. The initiation of this pension debate is gradually proving a good idea. Although pensions present a problem, they are not the main one. We are occupied with other questions of a socio-political, environmental and material nature. This will be a year of socio-political reforms, a year in which we will have to deal with the distribution of growth dividends. I have tried to make clear that, despite tax cuts, we must maintain the financial capacity of the State, which it needs to fulfil its social ambitions. If we manage to consequently tackle and solve these questions, our country will enjoy a prosperous future. As already mentioned, we must think structurally in the long term and plan our economy on a short- and medium-term basis. ********

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