Squeezed between the shiny offices of Dexia bank and an old steelworks on the Luxembourg-France border can be found a single research laboratory.

The Luxembourg Centre for Systems Biomedicine, which officially opened last autumn, is a tiny laboratory by international standards and has to rent space from its corporate neighbour to house its 70-strong research team.

But while modest in size, this building represents huge ambitions - not just for the University of Luxembourg but for an entire nation.

With the traditional pillar of its economy, steel, having suffered decline and with instability pla-guing the international finance markets that underpin its lucrative banking sector, Luxembourg is looking to transform itself into a knowledge economy.

³ÉÈËVRÊÓƵ

Biomedical laboratories such as this, as well as research centres focusing on information technology, are viewed as essential investments that will pay off in the form of new industries that will employ thousands of people.

It will be a huge challenge, but Luxembourg is prepared to spend big to make this dream a reality.

³ÉÈËVRÊÓƵ

While Qatar and other Middle Eastern countries use their petrodollars to fund higher education and research, Luxembourg is using tax receipts from its booming banking sector to fund its move into research-driven industries.

But it is a tall order, especially given the country's fledgling research base. Luxembourg's sole university was founded only nine years ago and has just 5,700 students.

The move into biomedical research was even more recent: Rudi Balling was appointed the LCSB's first director in September 2009.

"There was no one here when I started - I didn't even have a secretary," says Balling, who left behind a team of more than 600 scientists at the Helmholtz Centre for Infection Research, in Braunschweig, Germany, where he was scientific director.

"It was a tough decision to give up a tenured job with a good salary, a pension and a driver. The University of Luxembourg had not even taken a decision on what the labor-atory's research focus would be."

Once Parkinson's disease was identified as the main research area, Balling began to recruit biologists from across the world, as well as bioinformaticians and mathematicians, to investigate all aspects of the neurodegenerative disease.

Keen to attract some of the world's top young researchers, Balling stresses that his laboratory has the resources to help rising stars make a name for themselves.

"It is not somewhere for people if they simply want to sit down in a made nest," he says.

³ÉÈËVRÊÓƵ

"It's like joining a small start-up company - you wouldn't expect to get a nice pension plan or lots of administrative backup.

"But if you want to go for this opportunity, you will get the support you need.

"If I were a young researcher again and could choose to do my research anywhere in the world, it would be Luxembourg."

Such bullish statements may be justified given the massive level of investment committed by this tiny state, which is situated on the borders of France, Germany and Belgium.

Despite a population of just over 500,000 - the same size as Sheffield - the country has poured more than €600 million (?483 million) into a new campus home for the University of Luxembourg in Belval, about 20km south-west of the capital, which will also house a new science park, with sizeable resources available to recruit top staff.

This financial backing will be vital to build the university's research credentials, insists its rector, Rolf Tarrach.

"If you are relatively young, you can build a team and bring in your own people," says Tarrach, a physi-cist who has worked at the European Organization for Nuclear Research (Cern) and has previously headed Spain's National Research Council.

"There are very few universities that have a 10 per cent increase in their budget year on year.

"Our salaries are also very good - competitive with Swiss research centres. We know that if we manage to get two or three really top people each year, we will have a really good university in 10 to 15 years."

Tarrach believes that Luxembourg's multilingual and international population will also help attract researchers. Most natives speak French, German and English fluently, and about two-thirds of people in the capital city come from outside Luxembourg.

"A foreigner feels immediately at home here because everyone is a foreigner," says Tarrach.

³ÉÈËVRÊÓƵ

"No nationality is dominant, unlike cities in Germany or France."

The polyglot character of the university, where courses are taught in at least two languages, might also be attractive to undergraduates - likewise the nominal "registration" fees of just €400 a year, he adds.

"For me, English is a must, but if all courses are taught in English it is no longer a virtue.

"I want this university to continue to teach in French and German because if you look at those countries where French, German and English are spoken, they produce 70 per cent of the European Union's gross domestic product.

"Graduates have a huge job market in front of them."

Tarrach is also looking forward to consolidating the university's three campuses into the new Belval campus by 2014.

Only the university's Faculty of Law, Economics and Finance will remain at the institution's main Limpertsberg campus - a converted 19th-century monastery in Luxembourg City - to preserve its links with the nearby multinational companies and the European Court of Justice.

There is a downside to living in a hugely prosperous country populated by highly paid lawyers and bankers. As with London, property prices are sky high and force many academics and some students to live in France or Germany and commute over the border each day.

Champions of university autonomy might also be concerned by the close attention to the institution paid by the country's Parliament, which is keen to see tangible results from its unprecedented investment.

"In a small country, it is important to have a balance between institutional autonomy and responsibility (to taxpayers)," explains Francois Biltgen, minister for higher education and research, whose busy brief also includes justice, media, religious affairs and civil service reform.

"Back in 2004 there were members of parliament asking why the university had employed this teacher rather than another lecturer who came from Luxembourg."

Such meddling is less common nowadays, he says, with the university given space to operate by a four-year contract under which certain research and teaching targets are negotiated between academics and the government.

Tarrach also points to the results of the European University Association's autonomy scorecard, published in November, which rated Luxembourg highly for financial autonomy, though much lower for organisational autonomy.

The growing level of state investment in research is perhaps the best evidence for the country's commitment to creating a world-class university, argues Biltgen.

Twelve years ago, Luxembourg committed only 0.1 per cent of its GDP to research and development. By 2020, it expects to spend 2.3 per cent of its wealth on R&D - just below the 2.6 per cent target set by the EU.

Research into cybersecurity at the new Interdisciplinary Centre for Security, Reliability and Trust will be a major focus for the university, which has already partnered with several large finance and technology corporations involved in the field.

For instance, global satellite operator SES, which pioneered multi-channel broadcasting in Europe, has funded a chair in satellite communications and law.

The move into biomedical research, led by Balling, is more problematic, as the industry is entirely new for Luxembourg.

But the success of Singapore, which also owes its wealth to its success in banking and finance, shows that an ambitious country can gain a foothold in the biosciences market, insists Marc Schiltz, secretary general of the National Research Fund, which allocates research grants.

"We have a certain genius in Luxembourg in looking at how others have done it, finding what works best and applying it," he says.

"We can build something up and also bring our own creativity to it."

³ÉÈËVRÊÓƵ

jack.grove@tsleducation.com.