Belgian king calls for budget cuts in 2011

10th January 2011, Comments 0 comments

King Albert II on Monday called on Belgium's caretaker government to prepare a 2011 budget which will be better balanced "than the one agreed with the European authorities," the palace said.

The statement followed a meeting between the king and Prime Minister Yves Leterme, whose government has run the country since general elections June 13 that failed to produce an outright winner.

Pressure from financial markets on Belgium, pushing up its borrowing costs, has increased as political leaders repeatedly fail to come to an agreement to set up a working coalition.

In December, caretaker Finance Minister Didier Reynders called for a bigger-than-anticipated cut in its deficit to reassure the markets.

"As soon as 2011 starts we will have to take measures to respond to the (European) Stability Pact", providing for a cut in public deficit to 4.1 percent of GDP from six percent in 2010, Reynders said.

Reynders said at the time that Belgium should slice the deficit to 3.7 percent, meaning the federal government would need to trim around an extra two billion euros from the 2011 budget.

Belgium this weekend picked up the dubious record of being without a government for the longest time in post-war Europe when it broke a 208-day mark hit by the Netherlands in 1977.

Hopes of a breakthrough in its long political impasses were dashed last week when Flemish separatists rejected an offer to discuss a proposed reform of the country's institutions.

The collapse angered commentators as well as the go-between who drafted the proposal to bridge a widening gulf between leaders of Dutch-speaking Flanders and French-speaking Wallonia.

Johan Vande Lanotte, who was appointed as mediator by the king, said he was throwing in the towel and had tendered his resignation to Albert II.

The king is to offer a formal response Tuesday, either asking Vande Lanotte to continue his efforts or proposing a new way out of the deadlock.

"One day, the political leaders will have to take this step in the interests of the country's prosperity," Vande Lanotte said last week.

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

A top official at the Belgian Debt Agency has 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.

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 even higher.

© 2011 AFP

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