Belgium tries to resolve budget, political troubles
BRUSSELS -- In the midst of Europe's worst economic crisis in generations, Belgium has been without a fully functioning government for more than 530 days .
Squabbling Belgian politicians were finally stung into action after Standard & Poor's announcement late Friday that it cut the country's credit rating from AA+ to AA, the first cut in more than a decade.
With interest on Belgian 10-year bonds already above 5%, the ratings cut risked pushing government borrowing costs to unsustainable levels — and making Belgium the next domino to fall in the eurozone's ever-widening debt crisis. In response, political parties agreed over the weekend on a draft budget to cut the deficit to 2.8% of gross domestic product next year through an 11.3 billion euro ($15 billion) package of savings and new taxes.
An economic collapse in this nation of 10 million could reverberate beyond its borders: Belgium is a core member of the eurozone and one of the founders of the EU, and its capital, Brussels, is host to the bloc's headquarters. Belgian banks and the wider economy are also closely connected to France, itself under mounting pressure from the markets.
In a sign of growing European concern, the top finance official at the EU's head office appealed last week for Belgium to get its act together with budget measures to control public debt, which is set to rise to 97.2% of gross domestic product in 2012.
"I trust that Belgium as a founding member state of the European Union, as a very committed euro-area member state, will carry out its responsibility to meet these fiscal targets and decide on the other reforms, for the sake of Belgium and its citizens, as well as for the sake of Europe as a whole," Olli Rehn, the EU's economic and monetary affairs commissioner, told reporters.
To emphasize his point, Rehn is threatening to use new crisis powers granted to the European Commission to sanction Belgium — along with Cyprus, Malta, Poland and Hungary — if it doesn't produce a credible plan for controlling public finances by mid-December. Belgium could face fines of 700 million euros ($932 million).
Saturday's budget deal has raised hopes that a new government can be formed this week, ending the deadlock between French- and Dutch-speaking parties that has left the country under a caretaker government with limited powers since inconclusive elections on June 13, 2010.
"We've shown that Belgium is able to take very difficult decisions and to face up to any situation," said Elio di Rupo, the leader of the Socialist Party who led the negotiations and is expected to become the first prime minister from Belgium's minority French-speaking community since the 1970s. Labor unions have called a day of action on Friday against the measures, which include delaying retirement ages and cutting unemployment benefits, as well as taxes on higher incomes.
In a first market reaction, a 2 billion euro ($2.7 billion) Belgian bond issue on Monday was over-subscribed, but the state still had to pay 5.6% on its 10-year bond. That was down slightly from last week but still historically high.
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