In a peculiar financial arrangement, Luxembourgish taxpayers are funding interest payments to the country's wealthiest municipality, which lent money to the state it is a part of.
The municipality of Luxembourg City has previously lent money to the Luxembourgish state, a practice confirmed by municipal executive board member Laurent Mosar.
This arrangement did not involve the state's most recent €2.5 billion bond issue from September, but rather a €2 billion issuance in 2017 with a fixed interest rate of 0.625%. The City purchased €3 million worth of these bonds. As a result, national taxpayers have been paying the municipality an annual coupon of €18,750 since 2017, with payments set to continue until the bond matures in 2027.
At the time of the purchase in 2017, the capital was governed by a coalition of the Democratic Party (DP) and The Greens (déi Gréng). However, the decision falls under the purview of the municipal revenue service, which independently manages the city's assets. A law from 1988 stipulates that each municipality's receiver manages revenue and expenditure "alone and under their own responsibility."
While Mosar expressed full confidence in his staff, he argued that this law is now outdated. He believes the receiver's sole responsibility is excessive, posing potential security risks and a lack of protection for the official himself.
The situation highlights a significant financial disparity among municipalities. Luxembourg City holds reserves of approximately €1.4 billion, the largest by far, while many of the country's other 100 municipalities are in debt. This raises a broader question about the efficiency of public financial management at both local and national levels.
According to the State Treasury's website, the Luxembourgish state has issued 14 "institutional bond issues." While some carry 0% interest, most have rates between 1% and 3%. The total state debt amounts to approximately €24.25 billion, or roughly 27% of the nation's €90 billion GDP.
