Elio Di Rupo, charged by the King of Belgium Albert II to build up a government, resigned on Nov. 21.
For the past few months, Elio Di Rupo has done a great job by trying to close the deal with meeting after meeting, agreement after agreement. He solved the institutional "casus belli" between dutch speaking and french speaking political parties. However, the 2012 budget negotiations collapsed after several failed attempts.
Markets are fed up with the 500+ days of negotiations. Years ago, Belgian were teased around the world about any opportunity of splitting the country, today analysts ironically smile asking us about whether we'll have a government before next elections.
While the rest of European countries had to implement austerity measures, Belgium remained oblivious to the European Union's call, but the European Commission has sent an official request to Brussels regarding the 2012 Belgian Budget. The deadline is clear, all the budget documents are to be delivered on December the 15th 2011. And this budget will be an austerity budget...
Furthermore, there is still almost additional 10 Bn EUR shortfall that needs to be met either by cutting spending or by increasing tax, and this is where left-wing and right-wing political parties are not able to meet half way.
|Chart Source: Reuters (Added by EconMatters)|
However, markets spoke for the first time in 3 years. The Belgian 10-year Bond have risen above 5%. Just as a reminder, on October 3th 2011, 10-year Bond were at 3.63%. Next year, Belgium will have to borrow 39 Bn EUR via a long term Bond (10-year). This 10-year Bond borrowing rate increase implies an additional burden of 390 M EUR/year !
All the gains found in the 2012 budget will be offset because of the steep rise seen these days with Belgian Bonds.
Belgium is not Greece, Portugal or Italy but the country may face a tough period ahead if any political agreement is found before mid-December 2011.
There is no way out for Belgian politicians. Either politicians find an agreement or the markets will decide for them and put an enormous pressure on the country. As it turns out, there is a dire need of drastic structural policy changes in the following weeks and months but we're still waiting for it...
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About The Author - Roberto De Primis is a business intelligence analyst with an M.A. in Political Science. from E.M. Solvay Business School. Writing from Brussels, he is the founder of Eurintelligence, linking economics, and finance with politics. (EconMatters author archive here.)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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