Financial hub Luxembourg under increased scrutiny

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Associated Press

Posted on April 7, 2013 at 2:30 AM

Updated Sunday, Apr 7 at 2:33 AM

BRUSSELS (AP) — Tranquil Luxembourg, with a population of just 500,000, is now on the radar screen of some of Europe's regulators, who wonder if its banks might be holding the 17-nation eurozone's next ticking bomb.

Following the chaotic bailout for Cyprus last week, European officials have been drawing worrying comparisons between the two countries' oversized financial industries.

Luxembourg is the European Union's wealthiest country so the increased scrutiny has taken the country's government by surprise and put it on the defensive. It has rejected calls to shrink its country's main source of wealth to a more manageable size. Luxembourg says its banking industry is much more secure than Cyprus's and any crackdown would not only harm its own economy but that of the wider eurozone.

Luxembourg has relatively little debt, but if it faced a widespread problem, some say it might not be able to cope.

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