Belgium readies budget cuts after king intervenes
Belgium's caretaker government gave itself 24 hours on Tuesday to prepare budget cuts designed to calm financial markets unsettled by the country's heavy debt and political crisis, after an unusual intervention by the king.
January 11, 2011 / 20:13 IST
Belgium's caretaker government gave itself 24 hours on Tuesday to prepare budget cuts designed to calm financial markets unsettled by the country's heavy debt and political crisis, after an unusual intervention by the king.
Yves Leterme, who has stayed on as prime minister for seven months since an inconclusive parliamentary election, will present plans for 2011 to key cabinet members on Wednesday.With bond markets showing concern that political deadlock will prevent the country from tackling its debts, King Albert took the extraordinary measure of asking Leterme to draft a budget tighter than one already agreed with the European Union.Belgium's king appoints prime ministers and mediators during coalition formation, but like other European monarchs, traditionally remains outside economic and political debate."It is completely unusual that he is doing this," said Dave Sinardet, politics lecturer at the University of Antwerp and the Vrije Univeristeit Brussels.The current plan for a deficit this year of 4.1% of annual output (GDP), despite being likely to fall below the euro zone average, has not been enough to calm financial markets.The premium investors demanded for holding 10-year Belgian government debt versus benchmark German equivalents rose 8 basis points to 145, just short of the euro lifetime record 149 points hit on November 30.Belgian newspaper De Morgen said on Tuesday it expected Leterme to seek 4 billion euros of savings, bringing the budget deficit down to 3.7%.Belgium was largely untouched by the euro zone's sovereign debt crisis until the end of November, when concerns struck about contagion from Ireland, Greece and other troubled economies. Belgium's debt-to-GDP ratio of nearly 100% was the third highest in the European Union last year.Economists and market speculators have begun to view political paralysis in the linguistically divided country of 10.6 mn people as harmful for its efforts to reduce debt.Credit ratings agency Standard & Poor's said a month ago it could downgrade the country within half a year if no government is formed.King Albert was due to receive a mediator on Tuesday who has been trying for almost three months without success to break a political deadlock between French- and Dutch-speaking parties.Johan Vande Lanotte tendered his resignation to the king last week after the country's two largest Dutch-speaking parties rejected his proposals. The monarch was expected to announce on Tuesday whether or not he had accepted Lanotte's exit.The prospect of elections, likely to unsettle markets, is growing.Observers say this will not solve the country's problems, but will deepen the split between Dutch speakers wanting more powers for their region of Flanders and French speakers who fear further devolution will lead to the country's break-up.Analysts have said that another possibility, an emergency government with wider powers than the caretaker administration, would not calm markets.Philippe Ledent, an economist at ING Belgium, said the country needed extensive reforms of its public finances and that short-term measures alone would not suffice. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
