Belgian central bank calls for government to soothe markets

Belgium’s central bank chief, Guy Quaden, on Monday urged the rudderless country’s divided politicians to speedily form a government to allay financial market fears about its future.

“It would be best to have a new government in the next weeks,” Quaden told a news conference after yields peaked on Belgian bonds last week, seeing Belgium lumped in with other weak eurozone economies Portugal and Spain that analysts suggest are next in line for bailouts after Greece and Ireland.

He also revised upwards growth forecasts to 2.1 percent for 2010, against a June forecast of 1.3 percent, and 1.8 percent for 2011, against a previous estimate of 1.7 percent.

Belgium is being run by a caretaker cabinet after elections last June failed to produce an outright winner, with political leaders in the language-divided nation of 10 million still squabbling over a deal.

“A government is needed quite rapidly but it must be a stable government,” he said.

“It is difficult to understand overseas how a country can remain with a government for over six months and still continue to function.”

But Quaden said the response on markets last week to the Belgian political impasse was both “bizarre” and “more than irrational.”

“I cannot see how one could reasonably assimilate (Belgium) with other countries that are facing problems,” he said.

With growth better than expected, the BNB chief said deficit was expected to hit 4.8 percent of GDP this year and slide to 4.7 percent in 2011. Debt is forecast at 97.6 percent this year and 99.8 percent next year.

Significantly, that came in below the latest EU forecasts released last week that would make Belgium only the third eurozone state to amass debts of more than 100 percent, or a year’s output, after Greece and Ireland.

“Belgian growth is higher than the European average and the deficit is lower,” he said.