Belgium hit with new budget blow in knock-on Dexia tumble

17th November 2011, Comments 0 comments

Belgium faced a 1.5-billion-euro bill on Thursday caused by the collapse of Dexia bank, bad news as it battles to fix a 2012 budget and beat a deadline to avoid EU sanctions over a rising deficit.

Cooperative savers group Arco, which holds a 14-percent share in Dexia, announced on Wednesday that it was going into voluntary liquidation.

It said this was due to its investment in the Dexia parent group and a collapsed shareholding value after the government took over the Belgian arm of the bank, which folded on its exposure to the eurozone debt crisis.

Arco said in a statement aimed at its 700,000 small investors that they would be hit to the tune of 1.5 billion euros ($2.0 billion) but that state savers' guarantees would kick in, which in practice would mean "100 percent" reimbursement next year.

Belgium, France and Luxembourg decided in October to dismantle Dexia with Belgium agreeing to pay 4.0 billion euros to nationalise its domestic retail unit.

The three governments guaranteed the bank to the amount of 90 billion euros, with 60.5 percent for Belgium, 36.5 percent for France and 3.0 percent for Luxembourg.

Belgium is under pressure to slash its public debt but politicians have yet to form a new government 522 days after legislative elections.

The six-party negotiations are also held up by disagreements over how to trim 11.3 billion euros from the deficit next year, with marathon talks set to resume later Thursday.

© 2011 AFP

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