S&P downgrades Belgium credit rating one notch to AA

26th November 2011, Comments 0 comments

Standard & Poor's downgraded Belgium's credit rating on Friday over concerns about the country's world-record political impasse, its debt level and slowing growth.

The caretaker prime minister, Yves Leterme, said the downgrade was "bad news" and he urged bickering political parties to reach a deal on a 2012 budget this weekend to finally pave the way for the formation of a coalition government.

Ratings agencies have long warned Belgium that the political impasse, which has lasted a world-record 19 months, could impact the credit score of a country whose debt is nearly as big as its annual national output.

"The ability of authorities to respond to potential economic pressures from inside and outside of Belgium... in our opinion is constrained by the repeated failure of attempts to form a new government," S&P said in a statement.

After Greece, Portugal and Ireland received bailouts in the last year, and with Italy and Spain now in the firing line, the downgrade is more bad news for eurozone leaders scrambling to contain the relentless debt crisis.

The news came as Socialist leader Elio Di Rupo, the French-speaking politician favoured to become the next prime minister, led a new round of talks among six Flemish and Francophone parties struggling to reach a budget deal.

Belgium has been left with just a caretaker government for more than 500 days as its politicial parties bicker over forming a workable coalition.

Speaking on RTL television, Leterme called for a coalition deal before the weekend ends: "It is blindingly obvious, we have to send a very clear signal... preferably before the markets open (on Monday)."

His finance minister, Didier Reynders, blamed the downgrade on a "global loss of confidence" in eurozone public finances and insisted that Belgium's creditworthiness remained "one of the strongest in Europe."

The European Commission repeated Wednesday a warning to Belgium to bring its public deficit below 3.0 percent of GDP by 2012 -- rather than the 4.6 percent forecast failing action -- or face a fine running over half a billion euros.

The parties involved are widely divided over how to trim 11.3 billion euros off the deficit next year and some 20 billion in all by 2015.

Centre-right parties want Di Rupo to pledge more cuts in social welfare benefits and state spending rather than raising taxes.

S&P cited risks of setbacks in efforts to cut the public deficit "stemming from an increasing likelihood we see that economic growth will slow, given the deleveraging of the European financial sector."

Market turmoil also threatens the Belgian financial sector and raises "the likelihood that the sector will require more sovereign support," the agency said.

It noted the bailout of French-Belgian bank Dexia had largely cancelled out progress on cutting the deficit this year.

© 2011 AFP

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