Luxembourg is a parliamentary representative democracy with a constitutional monarchy, ruled by a Grand Duke. It is the world's only sovereign Grand Duchy. Luxembourg is a founding member of the European Union, NATO, the United Nations, Benelux, and the Western European Union, reflecting the political consensus in favour of economic, political, and military integration. Luxembourg City, the capital and largest city, is the seat of several institutions and agencies of the European Union.

Luxembourg lies on the cultural divide between Romance Europe and Germanic Europe, borrowing customs from each of the distinct traditions. Although French and Luxembourgish are the predominant language in the daily life and streets, Luxembourg remains a trilingual country; French, German, and Luxembourgish are official languages. Although it is a secular state, Luxembourg is predominantly Roman Catholic.

History

The recorded history of Luxembourg begins with the construction of Luxembourg Castle in 963. Around this fort, a town gradually developed, which became the centre of a small, but important, state of great strategic value. In 1437, the House of Luxembourg suffered a succession crisis, precipitated by the lack of a male heir to assume the throne. In the following centuries, Luxembourg's fortress was steadily enlarged and strengthened over the years by its successive occupants, the Bourbons, Habsburgs, Hohenzollerns, and the French, among others. After the defeat of Napoleon in 1815, Luxembourg was disputed between Prussia and the Netherlands. The Congress of Vienna formed Luxembourg as a Grand Duchy in personal union with the Netherlands. Luxembourg also became a member German Confederation, with a Confederate fortress manned by Prussian troops.

The Belgian revolution of 1830–1839 reduced Luxembourg's territory by more than half, as the predominantly francophone western part of the country was transferred to Belgium. Luxembourg's independence was reaffirmed by the 1839 First Treaty of London. In the same year, Luxembourg joined the Zollverein. Luxembourg's independence and neutrality were again affirmed by the 1867 Second Treaty of London, after the Luxembourg Crisis nearly led to war between Prussia and France. After the latter conflict, the Confederate fortress was dismantled.

The King of the Netherlands remained Head of State as Grand Duke of Luxembourg, maintaining personal union between the two countries until 1890. At the death of William III, the Dutch throne passed to his daughter Wilhelmina, while Luxembourg (at that time restricted to male heirs; see Salic Law) passed to Adolph of Nassau-Weilburg.

Luxembourg was invaded and occupied by Germany during the First World War, but was allowed to maintain its independence and political mechanisms. It was again subject to German occupation in the Second World War, and was formally annexed into the Third Reich in 1942.

During World War II, Luxembourg abandoned its policy of neutrality, when it joined the Allies in fighting Germany. Its government, exiled to London set up a small group of volunteers, who participated in the Normandy invasion. It became a founding member of the United Nations in 1946, and of NATO in 1949. In 1957, Luxembourg became one of the six founding countries of the European Economic Community (later the European Union), and, in 1999, it joined the euro currency area. In 2005, a referendum on the EU treaty establishing a constitution for Europe was held in Luxembourg.

Government and politics

Luxembourg has a parliamentary form of government with a constitutional monarchy inherited by male-preference primogeniture. Under the constitution of 1868, executive power is exercised by the Grand Duke or Grand Duchess and the cabinet, which consists of a Prime Minister and several other ministers. The Grand Duke has the power to dissolve the legislature and reinstate a new one. However, since 1919, sovereignty has resided with the country.

Legislative power is vested in the Chamber of Deputies, a unicameral legislature of 60 members, who are directly elected to 5-year terms from four constituencies. A second body, the Council of State (Conseil d'État), composed of 21 ordinary citizens appointed by the Grand Duke, advises the Chamber of Deputies in the drafting of legislation.

The Grand Duchy has three lower tribunals (justices de paix; in Esch-sur-Alzette, Luxembourg City, and Diekirch), two district tribunals (Luxembourg City and Diekirch) and a Superior Court of Justice (Luxembourg City), which includes the Court of Appeal and the Court of Cassation. There is also an Administrative Tribunal and an Administrative Court, as well as a Constitutional Court, all of which are located in Luxembourg City.

Luxembourg's contribution to its defence and to NATO consists of a small army. As a landlocked country, it has no navy, and it has no air force, except for the fact that the 18 NATO AWACS airplanes were registered as aircraft of Luxembourg as a matter of political and aviational convenience.In a joint agreement with Belgium, both countries have put forth funding for one A400M military cargo plane, and have it on order. Luxembourg still maintains three Boeing 707 model TCA for cargo and training purposes based in NATO Air Base Geilenkirchen.

Demographics

As of 2000, there were 162,000 immigrants in Luxembourg, accounting for 37 percent of the total population. The native population are ethnically a French and Germanic blend, alongside many immigrants from surrounding nations such as Germany, France, Portugal, Belgium, and Italy. In the past few years Luxembourg saw many immigrants from from war torn and politically unstable Balkan states such as Bosnia Herzegowina, Montenegro and Kosovo. Annually, over 10,000 new immigrants arrive in Luxembourg, mostly from EU states, as well as Eastern Europe. There are an estimated 5,000 illegal immigrants in Luxembourg.

Economy

Luxembourg's stable, high-income economy features moderate growth, low inflation, and low unemployment. The industrial sector, which was until recently dominated by steel, has become increasingly more diversified to include chemicals, rubber, and other products. During the past decades, growth in the financial sector has more than compensated for the decline in steel. Services, especially banking and other financial exports, account for the majority of economic output. Agriculture is based on small, family-owned farms. Luxembourg has especially close trade and financial ties to Belgium and the Netherlands (see Benelux), and as a member of the EU, enjoys the advantages of the open European market. Luxembourg possesses the highest GDP per capita in the world (US$72,945 as of 2005), the fourth-highest HDI, and the fourth-highest quality of life. Unemployment is 4.8% of the labour force as of March 2006. For the fiscal year of 2005 and current year 2006, Luxembourg has run a budget deficit for the first time in numerous years mostly due to slower growth and the slowdown of the international markets.