Belgium faces strong bond pressure

11th January 2011, Comments 0 comments

The interest rate Belgium must pay to borrow money on the bond market surged to record heights on Tuesday with investors focusing on the country's marathon political crisis.

The market pressure came one day after King Albert II asked caretaker Prime Minister Yves Leterme to tighten the 2011 budget, amid concerns the country's failure to form a coalition government would leave it the next victim of the eurozone debt crisis.

The spread, or difference, between the interest rates demanded by investors to buy Belgian bonds and the benchmark German bund rose to 148.2 basis points in late morning trading.

This means Belgium would have to pay nearly 1.5 percentage points more than Germany to borrow money on the market.

The yield, or rate, on Belgian 10-year bonds rose to 4.290 percent from 4.218 late on Monday. It was still under the historic high level of 5.010 percent reached in July 2008.

This weekend, Belgium picked up the dubious record of being without a government for the longest time in post-war Europe when it broke a 208-day mark hit by the Netherlands in 1977. Tuesday marked day 212 without a government.

The mediator tasked by the king to revive coalition talks between feuding Dutch and French speaking political parties handed in his resignation last week after his plan was rejected by Flemish nationalists.

Albert II was to decide later on Tuesday whether to accept the resignation or find a new course of action.

Ratings agency Standard & Poor's warned last month that it could cut the country's credit score within six months if a government were not quickly formed, a move that would push its borrowing costs even higher.

Finance Minister Didier Reynders has warned that speculators would seize on the country's political crisis if the country did not make further efforts to cut its deficit in the first quarter.

"I think the international financial markets impose such cautious measures on us," Leterme said. "It is in the interest of the population that the budget does not get out of hand."

The country's public deficit is much lower than in weaker eurozone countries such as Ireland and Greece, which were forced by the markets into multi-billion-euro rescues from the EU and International Monetary Fund last year.

But it has a heavy debt load hovering just below the 100-percent mark of gross domestic product.

© 2011 AFP

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