The economic recovery of the 1920s was followed by the crisis of the thirties, from which Luxembourg was not to be spared and which triggered a worldwide economic slump.
Yet in the Grand Duchy, the unemployment rate remained relatively low, since layoffs affected in particular immigrant workers who, without work, were obliged to return to their country of origin. The economic crisis provided a certain impetus to the communist party. Revolutionary ideas gained in popularity among the labourers of the mining district, which did not fail to cause concern among conservative circles.
In 1937, the government tried to outlaw the Communist Party by means of a law aimed at 'defending political and social order', branded a 'muzzle law' by its opponents. In spite of a positive vote in Parliament, the majority of voters rejected this step in a referendum, considering it to be a violation of freedom of opinion.
On an international level, Luxembourg consolidated its position by playing an active role in the League of Nations in Geneva, while still maintaining its neutrality. With the establishment of the Nazi regime in Germany in 1933, however, an outside threat was once again looming on the horizon.