So what if it has the world's highest per capita GDP? A visit to the debt-ridden capital of European complacency.
- By Eric PapeEric Pape is a writer in Paris.
In the dark heart of Europe lies a nation rotten to the core. Renowned as a secret banking haven where North Korean leader Kim Jong Il allegedly squirreled away billions of dollars, its economy is tied to the whims of capricious global money markets. The country’s per capita external debt is 84 times that of the debt-ridden United States (some $3.76 million for each man, woman, and child). Democracy is a joke, undermined by a hereditary and unelected head of state who not only can dissolve parliament, but appoints some of its members in the first place. Beleaguered citizens worry about just how sustainable their ever-more-fragile country is, which is no surprise given that foreigners make up 44 percent of the population and the equivalent of another 25 percent invade the country daily just to do its work.
So where is this armpit of the European Union, this cancer of the continent? Greece? The Balkans? Not exactly. Behold the Grand Duchy of Luxembourg, population 503,000, a tiny freckle on the map between Belgium, France, and Germany.
Sure, cyclists and hikers might see this bucolic country as a verdant paradise, with its rolling green hills and lush pastures. And bankers may marvel at its spectacular wealth: Luxembourg boasts the world’s highest per capita GDP, $108,832 in 2010. But something must be wrong. The miserable Luxembourgers — who rate lower than all but one other European country on the Happy Planet Index (they’re tied with war-torn Sudan!) — buy more cigarettes and alcohol and have a higher per capita carbon footprint than any other country. And yet their national motto is "We want to remain what we are."
I had to know: Could this hard-partying little duchy hold the secret to the dark forces now tearing apart Europe?
On the cloudless summer day when I arrived, the quiet, well-kept streets of Luxembourg’s capital, creatively named Luxembourg City, seemed idyllic enough. The only time I sensed any sort of abyss was when I looked down from the elegant stone Pont Adolphe into the lush, precipitous gorge that cuts through town. An 18-piece military brass band was playing "Come Fly With Me" in the city center as well-dressed white people filtered in and out of luxury chain stores on the edge of the charming old town. In the distance, a row of investment banks glistened in the sun, identically armored with reflective, modern exteriors.
I wandered into a stylish bistro that leaked pulsing rhythms onto the Rue de la Boucherie, the trendiest street in the center of the old town — the kind of place, the waiter told me, where bankers gather to knock back copious amounts of booze on weekends. A bottle of whiskey in Luxembourg, explained Panagiotis Meidanis, an 18-year-old server with a truncated pompadour, sells for half the price that it does in his native Greece, where people earn a fraction of the local income, especially now. "When we close on weekend nights, they always want more," said Meidanis of his customers. "But for some reason they never get into fights here."
But what did he know? I needed to find a real Luxembourger. Across from the 19th-century Gare de Luxembourg with its art nouveau flourishes, I met with Georges Hausemer, who has published one of the remarkably few novels in the native Lëtzebuergesch language. Hausemer’s 1998 novel, Iwwer Waasser (Above Water), is a tale of a broken marriage set in the world of banking that the author describes as a "portrait in miniature" of Luxembourgian society.
But when I asked him whether his personal $3.76 million share of the external debt keeps him up at night, he said: "Is that true? No one is talking about this here." He sipped a Schweppes, sans alcohol, and then admitted soberly: "We are a bit lost." He spoke of the encroachments of "foreign" languages — French is officially used, while German and English are more common in business circles — and distant cultures. The end result, he says, is a country of commerce and banking that is "losing everything else." Even Hausemer, it turned out, is barely keeping the faith: He wrote his other novels in German.
To better understand modern Luxembourg’s raison d’être, I tracked down Igor, a nattily attired 30-something banker who agreed to speak with me on the condition that I wouldn’t mention his last name or the firm that employs him. He also insisted that we speak while he marched, in his designer shoes, from a business lunch to his car.
Igor told me of the sturm und drang that the 2008 financial crisis brought upon his poor country. "For clients, it was beyond stressful. They could lose their fortunes. They didn’t know if the banks were going to go under. They were guaranteed €100,000 by the state, but above that, nothing."
He lamented that the local real estate market remains below its peak levels and, worse, that the government introduced an income-tax hike to respond to the financial crisis. "How much was the tax increase?" I asked in horror. "Oh, only a small percentage," he said. (For upper-income earners, the tax rate rose 1 percent.)
Why put up with such hardships? "The quality of life here," said Igor, sliding into his sleek silver sports sedan. "It must be the best that you can have — especially with all of the help from the state."
But maybe I was talking to the wrong sort of people. I needed to find the country’s disaffected youth, its future shock troops for change. Before arriving in the duchy, I had contacted one of its best-known contemporary artists, the successful young filmmaker Max Jacoby. But he turned out to be living in London. Over email he told me that he can no longer imagine living in Luxembourg because it makes him "get itchy and want to leave" after a short time. "Aha!" I thought. "Here’s a young revolutionary in the making, forced into exile for his creative vision!"
Jacoby told of the soporific comforts of his homeland. He described a place where seasoned schoolteachers can earn up to $100,000 annually. "Why work as a starving artist," he wrote, "when you can earn a fine living teaching the alphabet?" I pushed him on the source of his frustration: "You don’t find any authentic Chinese restaurants," he complained, and "not a single Korean restaurant."
Finally, I went directly to the belly of the beast. Lucien Thiel, the former head of the Association des Banques et Banquiers and an active member of parliament, was waiting for me in an antechamber of the Chambre des Députés, the impeccably maintained neo-Renaissance parliament building. The 68-year-old Thiel had agreed to meet me between votes. To my surprise, he looked less like a high-powered banker than a kindly Santa Claus.
How, I wanted to know, did it come to this? Could this madness go on indefinitely? He sat me down and told me of the roots of Luxembourg’s economic success: It began with steel mining and evolved into niche banking. Today, he told me, Luxembourg is second only to the United States in investment funds.
But what of the crippling debt? No threat whatsoever for Luxembourg, Thiel insisted, given that it doesn’t really produce much of economic significance anymore. I scratched my head. "It isn’t that we are so productive, but we have this huge amount of money that we administer, and there is a windfall for us," Thiel said with a wink.
But surely, I pressed him, he must be worried about something. His smile dimmed a bit.
"I am concerned that we have such a good quality of life that we could come to see it as a gift from God and get too comfortable."
"Ask people what they want to remain now," said Thiel, "and they will respond: as rich as we are."