Belgium's shoddy political record poses financial threat

Belgium's shoddy political record poses financial threat

10th January 2011, Comments 1 comment

Without a government for nearly seven months, Belgium now holds a dubious record in Europe and with no end in sight to the political crisis, fears are growing of a backlash from watchful markets.

BRUSSEL - The divided country on Saturday broke the 208-day mark set by the Netherlands in 1977 for being without a government after a bid to coax feuding Flemish and French-speaking politicians back to the negotiating table failed.

All eyes will turn to King Albert II on Monday when he decides whether to accept the resignation tendered by his mediator, Flemish socialist Johan Vande Lanotte, whose compromise plan to revive coalition talks was rejected.

With the political fog thickening, Belgium could beat Iraq's ignominious 2009 world record of 289 days without a cabinet if it fails to form a new government by March 30.

The clock is also ticking on the financial side, however, as investors demand higher interest rates to lend money to Belgium despite the country's good reputation on the sovereign bond market.

"When you are trying to attract foreign investors, this political crisis is anything but an asset," Pascal Delwit, a political science professor at Universite Libre de Bruxelles, told AFP.

A top official at the Belgian Debt Agency said the political deadlock had raised the yield or rate of return Belgium must pay to investors by 20 basis points, the equivalent of 80 million euros (104 million dollars).

"The markets are following the political situation in Belgium," said Jean Deboutte, the agency's director of risk management and investor relations.

The country's public deficit is much lower than in weaker eurozone countries such as Ireland and Greece, which were massacred by the markets last year, forcing the two to receive multi-billion-euro EU-IMF bailouts.

But with debt hovering just below the 100-percent mark of GDP, ratings agencies and Belgium's central bank have warned of a potential threat from financial markets if politicians fail to strike a deal any time soon.

The caretaker finance minister, Didier Reynders, warned last month that Belgium would face the wrath of speculators if no action is taken to cut spending in the first three months of the year.

"I not only fear but I am sure that speculators will attack Belgium if in the first quarter ... decisions are not taken by a new government or the current (administrative) government," he told a television programme.

Debt ratings agency Standard & Poor's warned Belgium on December 14 that it could cut the country's credit score within six months if a government was not quickly formed, a move that would push its borrowing costs higher.

Belgium, host to NATO headquarters and the European Union's de facto capital in Brussels, has been in political crisis on and off since 2007 as nationalist sentiment grows in Flanders.

Hopes of a quick resumption of negotiations were dashed Thursday when the independence-minded New Flemish Alliance (N-VA), the top vote-getter in June 13 elections, raised objections to the Vande Lanotte plan, which would give regions more power over the public purse.

The N-VA, which represents the wealthier 6.2 million Dutch speakers in Flanders, complains of footing the national bill for the 4.5 million francophones living in the rust belt of Wallonia and wants more autonomy.

The strength of the Belgian economy, which is expected to post growth of 2.1 percent for 2010, has given it the luxury of living without a new government for more than 200 days, Delwit said.

"It is embarrassing but thankfully the economic fundamentals allow this," he said. "The risk is that at some point the fundamentals could deteriorate."

AFP/Expatica /Laurent Thomet

1 Comment To This Article

  • David Baeckelandt posted:

    on 12th January 2011, 12:34:16 - Reply

    The slant of this article is that Flemish nationalists are at fault for the economic problems of Belgium. The reality is that Flanders - with 59% of the population - produces 75% of Belgium's GDP and pays 80% of the taxes. The French-speaking parts of Belgium (Wallonia) depend on tax transfers from Flanders to support their welfare state regimes. The Flemish man/woman-in-the-street are simply tired of the fact that they endure crippling taxation to de facto support someone else's leisure lifestyle. It is as simple as that.

    The Flemish politicians want economic reform. The French-speakers are unwilling to give up anything. Moreover, the French-speakers have a permanent veto on any political decision. Which means that "one man, one vote" democracy does not exist in Belgium.