BCL chief lashes out against government

(CS) Luxembourg Central Bank (BCL) chief Yves Mersch has given a somber analysis of the Grand Duchy's economy saying the country was becoming impoverished.

Since 2007, Luxembourg's economy has been shrinking, said Mersch on Wednesday, coming up to an 8% decrease in the country's GDP. The GDP is expected to lie below the 2007 level, before the financial crisis hit.

Further, he accused Luxembourg of being in denial of economic realities, without taking any broad steps since 2008. Mersch called on the government to introduce necessary reforms to re-invigorate Luxembourg's competitiveness.

But this was not all, as Mersch put automatic indexation back on the table speaking on the growing inflation putting Luxembourg at a disadvantage opposite other partners, such as Germany.

Further problems were on the horizon, as deadlines for reforms of the pensions and health systems had been continuously missed, said Mersch, continuing that the pensions surplus was likely to disappear soon.

The BCL estimates Luxembourg's GDP growth at 1.6% for 2011, 1.7% according to Statec, with prospect significantly lower for 2012 at only 1%.