News From Elsewhere: Small country, big problems

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REMEMBER those criteria for economic convergence set out in the Maastricht treaty? The ones that Britain never looked likely to meet - such as low government borrowing and stable prices? Now that the Continent is plunging into recession, no other EC countries look likely to meet them either. Except one. Luxembourg.

Luxembourg is the richest EC country - in income per head of population, that is. Its currency (the Luxembourg franc) has been linked to the Belgian franc since 1921. But the latter has looked

distinctly wobbly ever since the European Monetary System went through its convulsion in August. In the past week the Belgian currency has hit the skids and Luxembourg's Foreign Minister, Jacques Poos, talks of how 'we'll have to count on our own resources'. One possibility is that the Luxembourg franc will be fixed to the ecu or European Currency Unit. Monetary union for Luxembourg alone, in effect.

So do not sneer at Luxembourg. With about 370,000 people, it is smaller than any US state, and is dwarfed by, for instance, Sheffield (about 540,000). Except Sheffield doesn't have its own armed forces, nor embassies throughout the world, nor a seat at the table in the European Community.

For most of those who visit Luxembourg, the experience is hardly heart-warming. The city is built around what was once a huge fortress which was razed to the ground in 1867 (when the Treaty of London made Luxembourg a neutral city) leaving only walls, towers and casemates. A new town was built on lower ground, linked to the old city by two rather precarious-looking bridges. Much of the charm of the place has been gradually eroded in the post-war decades. No fewer than 200 banks have moved in to exploit the country's regulatory openness. The streets are filled with cruising Mercedes, carrying customers from airport to hotel and bank and back to airport again. In the evenings they sit in restaurants, listlessly picking over their food.

Visitors who have a few million francs stuffed away in a secret bank account, or business at one of the many European Community institutions that sprawl across the bleak Plateau de Kirchberg, usually miss what the inhabitants regard as the real Luxembourg - the tinytowns, castles and villages. To the north is the Ardennes, with its rolling hills and deep valleys; to the south, the industrial belt where steel and coal still provide the backbone of the economy. Considering that the whole country covers just less than 1,000 sq miles, there is a great variety of scenery and an architectural heritage from the Middle Ages, the Baroque period and the 19th century.

Few of those who work for the EC in Luxembourg seem to have much idea of what goes on behind their neighbours' closed doors. 'It is as if there were a contract,' says one former inhabitant. 'We get our tax privileges and a decent lifestyle, they get left alone.' Hence, they have come to like, even love, the place. One describes it as 'Wiltshire with banks', a place where a minor official in the Court of Auditors can live like a country squire. The better-off can buy a new car, tax free, every 18 months and a pink-washed 18th-century farmhouse in a leafy valley. The language, Letzebuertesch, sounds to outsiders like an amalgam of German, French and Dutch. Written down it is even more confusing - but, though the written form is increasingly common, most newspapers, signs and announcements are still in French or German.

But Luxembourg has problems, and not just with its currency. It hosts many of the EC institutions, including the secretariat of the European parliament. Why this should be in Luxembourg when the assembly meets in Strasbourg and has its main buildings in Brussels is a mystery which only experts on the earliest days of the EC understand. With the construction of new offices for the parliament in Brussels, some of the administrative staff are moving up the road. Luxembourg is going to the European Court of Justice to defend itself, quoting the 1958 Treaty of Rome. The Court, by the way, is in Luxembourg.

There is also the knotty question of its European residents. Under the Maastricht treaty (mainly the work of Luxembourg) the country must give all Europeans on its territory the right to vote in European and local elections. But since a quarter of the population is foreign born (Portuguese and Italian immigrant labour, plus the ever-present Eurocrats), that could have some strange effects, particularly in the villages where the Portuguese are in a majority. Last week, the EC Council of Ministers agreed that Luxembourg could ban parties formed by national groups.

Most importantly, however, the very question of small states is starting to be controversialin the EC. When (and if) the Community takes in Sweden, Austria, Finland and maybe Norway, the number of members will reach 16.

The trouble is that being a small sovereign state is increasingly fashionable. Andorra has taken the plunge, throwing off the shackles of the Bishop of Urgel and the President of France in a referendum in March. Slovenia did it in rather more dramatic form when it liberated itself from Yugoslavia in 1991, as did the three Baltic states with the Soviet Union. Then there are the existing micro-states - Lichtenstein, San Marino, the Vatican, but also Malta and Cyprus. These 10 countries together have a combined population of 12.5 million, which is smaller than The Netherlands; would it make sense for them to have 10 times as many votes if they were to join the Community?

Besides which, isn't the point of European federalism to, well, dissolve sovereignty painlessly, like aspirin with a headache? Luxembourg is one of the great advocates of integration, but it is not about to give up its independence just so the big countries can have an easier life.

To cap it all, Luxembourg has had a rough time in the European qualifying rounds for the World Cup. They are at the bottom of Group 5, with one point and two goals out of seven games, and were thrashed 3-1 by Greece on Tuesday night. Even Iceland has done better - and it has a mere 250,000 citizens.

(Photograph omitted)