Fitch cuts Belgian rating outlook to Negative

23rd May 2011, Comments 0 comments

Fitch Ratings on Monday cut its outlook on Belgium to 'Negative' from 'Stable' because of a protracted political crisis that has left the country without a permanent government for months.

Fitch said the move reflected its concerns "over the pace of structural reform in the coming years and the ability to accelerate fiscal consolidation without a resolution to the constitutional crisis".

"However, despite the ongoing political dispute, day-to-day fiscal management has remained strong, in keeping with Belgium's high-grade rating," it added.

The markets are very sensitive to changes in credit ratings amid concerns that debt problems in Greece, Ireland and Portugal threaten fresh trouble for the eurozone.

Over the weekend, another of the top ratings agencies, Standard and Poor's downgraded Italy's outlook to 'Negative' from 'Stable,' spooking markets worried that Athens may have to restructure its debt at huge cost to all concerned.

Most analysts do not believe Belgium to be among those states at risk from their strained public finances, but some have previously cited its political problems as an issue.

Fitch said that "without political agreement over constitutional reform, it will be difficult to achieve a balanced budget ... Sustained debt reduction will require fiscal reform as well as fiscal discipline over the coming years, which in turn requires a new government with a fresh mandate."

"Political risk is higher in Belgium than in other euro-area peers given the fractious disputes over the future shape of the state," it said.

Fitch noted that the caretaker government in place since April 2010 has significant budgetary powers and the public finances have done better that most of its eurozone peers.

At the same time, it warned that a high level of public debt, equal to 96.6 percent of gross domestic product last year, "leaves the government with little spare fiscal capacity to deal with future shocks.

"This makes the rating sensitive to risks surrounding the government's medium-term fiscal objectives, which Fitch views as significant. Slippage from official deficit targets would likely result in a downgrade."

Last week, Belgium's King Albert II moved to give language-divided Belgium a government following almost a year of failed coalition talks between the French-speaking south and Dutch-speaking north.

A statement from the palace said Belgium's figurehead sovereign had asked Elio Di Rupo, head of the French-speaking Socialist party, to form a government. "Mr Di Rupo accepted," the statement said.

Di Rupo's party led the field in the French-speaking south at general elections on June 13, 2010, that failed to produce an outright majority.

The other big winner at that election was the separatist Flemish N-VA party headed by hardliner Bart De Wever.

Successive efforts to form a workable coalition have broken down repeatedly ever since, with Albert II naming a succession of special negotiators who have all returned empty-handed to the palace.

© 2011 AFP

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