Belgian parties reach 2012 budget deal: negotiator

26th November 2011, Comments 0 comments

Belgian politicians reached a deal on the 2012 budget Saturday, ending a 19-month deadlock that had prevented the formation of a stable government and led to a debt downgrade, a negotiator said.

"There is an agreement," a spokesman for the French-speaking socialists, one of six parties in the linguistically-divided country that had been struggling to reconcile spending cuts with tax rises.

The accord, reached after 17 hours of negotiations, opens the way to forming a new government after 19 months in caretaker management.

Friday night's downgrade by ratings giant Standard and Poor's, which saw Belgium drop by one notch to AA, piled pressure on the parties to reconcile spending cuts with tax rises to avoid EU penalties next month.

Internal pressure, though, was at least matched by external strains among wider eurozone leaders, two weeks from a crunch summit dogged by mounting doubts over their ability to resolve the debt crisis.

With a national debt worth almost one year's economic output, which threatens to crush the country with the onset of recession, outgoing Prime Minister Yves Leterme had made it clear he feared a rout when markets re-open on Monday if a way forward was not agreed.

"It is blindingly obvious, we have to send a very clear signal... preferably before the markets open," Leterme had said in a live national television interview before a shocked Belgian people.

The parties had to work out how to trim 11.3 billion euros off the deficit next year and some 20 billion in all by 2015.

The ultimatum came days after Leterme's expected successor, Elio Di Rupo, offered his resignation to Belgium's king, frustrated at the failure of six-party talks to agree a deficit-cutting 2012 budget to avoid EU sanctions.

Albert II rejected the offer and sent Di Rupo back to work.

The ratings blow underlined a sharp escalation of the debt crisis in a week in which even Germany struggled to raise finance.

Concern is growing that the euro currency, in the absence of radical pan-eurozone action, is close to breaking point.

"The ability of authorities to respond to potential economic pressures from inside and outside of Belgium... in our opinion is constrained by the repeated failure of attempts to form a new government," the S&P statement said.

After Greek, Portuguese and Irish bailouts, and with Italy, Spain and France now under pressure, it was more bad news for leaders struggling in the absence of a European Central Bank decision to mount a gigantic financial rescue.

The European Commission has repeatedly urged Belgium to bring its public deficit below 3.0 percent of GDP by 2012 -- or face a fine of some half a billion euros.

Finance Minister Didier Reynders blamed the downgrade on a "global loss of confidence" in eurozone public finances, while insisting that Belgium's creditworthiness remained "one of the strongest in Europe."

Analysts said the news had wider significance.

"Belgium is the symbolic buffer between the eurozone periphery and its core, so this is a sign that the crisis -- slowly, but surely -- is striking at the heart of Europe," Sony Kapoor, head of the Re-Define think tank, told AFP.

© 2011 AFP

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