Luxembourg, one of just two EU governments along with Belgium to apply automatic index-linked pay rises, announced on Wednesday it will reduce the frequency of its salary adjustments for three years.

The decision means the next increase in pay will be awarded only in October 2012 as opposed to March 2012 as well, a change Prime Minister Jean-Claude Juncker estimates will save his government 50 million euros ($65 million) next year, and the private sector 225 million euros.

In October, workers should earn au automatic 2.5-percent pay rise with inflation tipped at around that level over 2012 and also 2013.

Juncker "categorically" refused to disown the system, long criticised by employers, and said it will be resumed as of 2015.

European Union staff, tens of thousands of whom are based in Belgium and Luxembourg in the main, are taking the collective EU council of the bloc's 27 member states to court for the second time in three years over a refusal to meet an automatic pay adjustment which is directly linked to the rules in these two countries.