Luxembourg's grand duke will abdicate, passing the throne to his son

After his father abdicates in a ceremony at the Grand Ducal Palace, built of yellow stone and decorated with spires and ironwork, Guillaume will be crowned and then swear an oath to Luxembourg's constitution before the 60 elected members of the Chamber of Deputies, the duchy's parliament. After taking over from his father, Guillaume will tour the small nation, about the size of Rhode Island, and end with a Sunday mass with Archbishop Jean-Claude Hollerich at the Catholic Notre-Dame de Luxembourg cathedral.

At the heart of Europe

One of the European Union's smallest nations and its richest per capita, Luxembourg is a financial powerhouse that hosts important EU institutions like the European Court of Justice and the European Investment Bank. The grand duchy is home to many of the banks in the eurozone, reinsurance companies, and managers of hedge funds and money markets.

Its economy is strong, with virtually no unemployment. Cleaved from what is now France, Belgium and Germany in the 17th and 19th centuries, the small nation is a parliamentary democracy with the grand duke as head of state, akin to King Charles in the United Kingdom or King Philippe in Belgium. Roughly 700,000 citizens speak a mix of Luxembourgish, a Germanic language, and French and German in public life. Also widely spoken are English and Portuguese. Many people fled to Luxembourg from Portugal during the dictatorship of António Salazar in the 1960s.

Guillaume will be Luxembourg’s seventh grand duke since 1890, when the modern monarchy was established. Complex royal politics, as well as the loss of significant territories over the centuries, has meant Luxembourg is not a kingdom. It is the world's last remaining grand duchy.

Guillaume to inherit 21st-century problems

Henri laid out the challenges ahead for Guillaume and Luxembourg in his last Christmas speech.

“Climate change is probably the greatest challenge of the future, but geopolitical tensions, wars and economic upheaval also require a need for reflection,” he said. Luxembourg is “a crossroads of cultures” with strong traditions of democracy, freedom and human rights, he said while defending multilateralism as it comes under increased threat across the world.

The grand duke "stands above party politics," Henri said. He added, ”This does not mean, however, that he cannot take a stand on the fundamental interests of the country and its citizens.”

Christoph Brüll, a historian and professor at the University of Luxembourg, said the grand duke's position is central for protocol, like accrediting ambassadors, "but it’s not the grand duke who gives the big orientations in political life, that’s the government.”

Guillaume will have to help the government grapple with an aging population, soaring housing costs, immigration, and sprawling traffic jams resulting from day workers who commute from neighboring countries.

“Without French, German and Belgian workers, the country wouldn’t run," said Brüll. He said there are increasing tensions between unions, corporations and the government.

Guillaume will symbolically head the 1,000-person army of Luxembourg, which was a founding member of NATO in the wake of the devastation of World War II. Luxembourg hosts an important logistics hub for the military alliance.

It is a keen supporter of NATO today as the alliance grapples with Russian airspace breaches on Europe's eastern flank and a shaky relationship with the United States. Recently, Luxembourg Prime Minister Luc Frieden proposed expanding the duchy’s satellite capabilities within NATO.

Luxembourg also recently joined some other European nations in saying it will recognize a Palestinian state.

Amidst all this upheaval at home and abroad, Brüll said Guillaume will be stepping into a very traditional role.

“His margin of maneuver or right to action is zero. So the only power he has is then the power of speech or words. For the rest, the grand duke will remain a political symbol," he said.

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Associated Press journalist Mike Corder in The Hague, Netherlands contributed to this report.