Werner-Schaus Ministry II

In the period 1969–1974, Luxembourg continued to play an important role in Europe thanks to ideas on monetary integration developed by its Prime Minister. In January 1968, invited to a congress of the CDU in Germany, Pierre Werner had presented a five-point plan of for European Economic and Monetary Union. Provoking the interest of the other member states of the EEC, Werner was invited to elaborate his views before the conference of ministers of finance in Rotterdam in September 1968, then at the European summit of The Hague in December 1969. At this last meeting, the governments declared their intention to elaborate a plan for steps towards creating an economic and monetary union. Currency was going to be the motor for European construction. In March 1970, Pierre Werner was made the head of a study group that would report to the commission. In its final report, the commission of experts gave priority to the coordination of economic policies, the necessity for common decision-making instances, the centralisation of monetary policy by the creation of a committee of central bank governors, the limitation in variation of exchange rates and the creation of a European fund to sustain exchange rates. The “Werner Plan” was well-received, but the difficulties of the dollar and the pound sterling, the oil crisis and stagflation put a halt on its realisation. However, the European Monetary System, which came into force in 1979, made use of several of its elements, such as the European Monetary Cooperation Fund and the snake in the tunnel.

In 1972, after 50 years of existence, the Belgium-Luxembourg Economic Union was due to expire. The two governments decided to renew it every 10 years. Every renewal was the occasion for new negotiations. At the renewal of 1972, the question on the sharing of excise rights on petrol, cigarettes and alcohol was at the centre of negotiations. While the treaty of 1921 had established population size as the criterion for dividing up income from excise, the Luxembourgish government demanded a different method of dividing it up, which took more account of the economic realities. A protocol signed on 27 October 1971 tried to satisfy Luxembourgish demands in establishing at regular intervals, a new distribution of excise income.

During the late 1960s, the Grand Duchy's economy had been sluggish: its growth rate was less than that of its EEC partners. The weak growth was mainly due to the monolithic structure of the Luxembourgish economy. In 1968, the Economic and Social Council had warned the government that “everything leads us to believe that the times of great prosperity are over and will only return temporarily and in exceptional circumstances. Subsequently, one should not expect the steel industry to continue to be, as it has for many years, […] the essential pillar of technical, economic and social progress of the country”.

From 1969, the economic situation improved. Investments in the steel industry increased by 150% compared with 1968. Steel production increased considerably to reach the record number of 6,448,351 tonnes in 1974. Pay in the steel industry also increased by 27% from 1969 to 1973. The wave of prosperity dimmed the structural fears which had provoked the fall of the preceding government.

However, the full use of production capacities and increased global demand created a runaway situation which risked accelerating the spiral of inflation. From then on, government action aimed to counter the effects of economic overheating by strengthening price controls, by ordering credit institutions and pension funds to slow their credit policy, by temporarily authorising work on Saturdays in the construction sector, which was particularly affected by the lack of manpower, and by reducing the rate of VAT on a number of widely consumed items with a strong influence on the price index. A strong increase in the budget surplus made it possible to make public savings and lead a countercyclical policy. The state's budget surplus fed into various investment funds, such as the roads fund or the crisis fund created by the law of 27 July 1938. The introduction of VAT on 1 January 1970 also sparked fears of inflation. The replacement of the old tax on revenue, which had been the principal fiscal resource in the domain of indirect taxes, with the system of value-added tax risked becoming a new cause of price rises. The government introduced a reduced rate of 4%, alongside the normal rate of 8%.

The government had great difficulties in slowing the rush in the increase in incomes, another source of inflation. It found it impossible to change the sliding-scale of pay and salaries, a veritable social taboo. However, this measure would have permitted a deceleration of the spiral of prices and salaries. Salary demands in one sector triggered demands in others. In 1969, the government had to cede to demands of the civil service for a “correcting” of the gap that had grown between pay in the public and private sectors. In effect, the State, in competition with the banking industry which took a large part of university and secondary school graduates, had more and more difficulties in recruiting qualified candidates.

The economy's growth brought about strong growth in employment. However, on the back of a declining birth rate, the national jobs market was not capable of satisfying demand. In order to remedy the lack of manpower, the government resorted to immigration. On 20 May 1970, Luxembourg and Portugal signed a treaty which regulated the recruitment of Portuguese workers. On 28 May 1970, another agreement with the Yugoslavian government. From 1969 to 1974, 24,560 Portuguese workers arrived in Luxembourg.

The growth of the Luxembourgish economy accentuated the geographic imbalance by accelerating the depopulation of the predominantly agricultural Northern regions. The law of 20 March 1974, concerning the general development of the territory, for the first time addressed the question of structural and geographic balance on a national level. Its objective was to provide political decision-makers with the means to ensure a harmonious development of the country's infrastructure. This law was also a testament to the growing interest given to the notion of quality of life and the emergence of environmental considerations.

The price increase in oil products in 1972 plunged the Western economies into runaway inflation. The government took measures to reduce consumption of petrol, for example by outlawing use of cars on Sundays. In parallel, it sought alternative energy sources. In 1972, the government started a study of the construction of a nuclear power plant on Luxembourgish territory. Negotiations took place with the company Rheinisch-Westfälische Energie AG, which was also involved with the hydro-electric plant in Vianden. The project provided for the construction of a nuclear plant of 1200 MW on the Moselle, near Remerschen. However, already in 1974, opposition manifested itself.

In the sphere of the media, the government pursued the collaboration of the State with the CLT, at the same time reinforcing the control of the public powers over the company. On 4 April 1973, Pierre Werner signed an agreement to prolong the concessions to the CLT until 31 December 1995. The Luxembourgish government obtained a veto right on sales of shares which would affect the political neutrality or Luxembourgish nature of the business. The ClT's remit also obliged it to maintain a symphonic orchestra.