Lower Belgian credit rating affects Flanders

1st December 2011, Comments 0 comments

On Friday the credit rating agency Standard and Poor’s cut  Belgium’s credit rating by one step from AA+ to AA as a result of the government’s increasing support of the Belgian financial sector, which placed a huge burden on public debt. The Belgian authorities will also spend billions in guarantees for Dexia Holding. If the government is forced to take over large parts of this sector, as was the case in Ireland, it could have catastrophic consequences. As a federated state cannot have a higher rating than the central government, the federal downgrade has also caused a similar drop in the Flemish credit rating from AA+ to AA. Not that S&P is too worried that the region will meet its obligations in the longer term. The lower rating will however affect the region’s interest rate on loans, as it leads financial institutions to demand a higher interest rate in view of the higher credit risk. Some funds even exclude loans to organisations or countries without a top credit rating. Fortunately the practical implications of the cut are not that far-reaching for the Flemish administration as financial markets had already taken into account the lower rating. Flemish Finance and Budget Minister Philippe Muyters N-VA deplores this ripple effect on the Flemish rating. “S&P reported that we performed better than Belgium and that more financial autonomy would increase our credit rating.” Flemish Minister-President Kris Peeters CD&V echoes Muyters’ disappointment. He regrets Flanders is not entitled to receive a separate rating due to insufficient fiscal autonomy. He points out that S&P’s values Flanders' intrinsic rating at AA+: “We must continue our efforts to balance our budget and increase our independence to secure our own rating in future,” he reiterates.

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