Small-scale savers could bail out Belgium

24th November 2011, Comments 0 comments

Recent figures show that Belgians have in the region of 220 billion euros in their savings books in addition to the 120 billion euros they hold in investment fund portfolios. With a normal savings account you will earn only 1.25% interest whereas the first 1.770 euros interest is exempt from advance levy. With the interest on Belgian sovereign debt reaching a peak, the government has turned its attention to the smaller savings account holder. The sovereign debt notes that savers have been able to buy on a quarterly basis have only yielded 350 million euros so far this year, but with the increasing interest rates, the interest on sovereign debt notes has also gone up. The sovereign debt notes currently traded by the treasury are for a term of 3,5 and 8 years at an interest coupon of respectively 3.5% and 4.2%, which may rouse the interest of many people living off their interest. Premier Yves Leterme CD&V yesterday announced his intention to call on savers to help finance Belgian public debt, with sovereign debt notes as recommended vehicle. It will however take more than marketing to encourage investors. “Savers will also need to be convinced of the government’s reliability as investment partner and depositors will want to establish how much tax levy they will have to pay on the sovereign debt notes,” maintains Eric De Keuleneer, the professor who launched the idea to ask Belgian savers to support the repayment of Belgian public debt earlier this year. Rik Daems, Open VLD senator, suggested that tax exemption on savings accounts should be extended to also include public loans, linking the exemption to the savings product rather than to the saver to encourage savers to opt for sovereign debt notes. His party earlier asked the chairman of the economic commission in the Senate to urgently discuss a draft bill in this respect. Since early October, during the run-up to the Dexia bailout, long-term interest has increased by about 2%. As almost 80 billion euros of public loans have to be refinanced next year, the additional interest cost would amount to 1.6 billion euros at the current rate. The higher interest translates as an impoverishment for Belgians as an increasing number of foreign investors have bought Belgian bonds since the introduction of the euro. Foreign investors are by nature less committed to the Belgian market and quick to dump their foreign bond investments, which is, of course, the case in the whole of Europe. Until recently the banks benefited the most from Belgian savings. They used the funds deposited by their savings account customers to reinvest in government bonds or loans. Foreign banks like Deutsche Bank, BNP Paribas, Rabo and ING used the Belgian savings market as a source of cheap liquid assets to finance their international activities.

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