Belgium’s debt bomb is ticking

Published in Business Spectator (Melbourne), 20 January 2011

Belgium is famous for its waffles, chocolates and beers. But it seems that the country is no longer content with just culinary recognition. Belgians are now chasing a veritable world record: they want to be the country with the longest post-election negotiations. On the website Le Record du Monde they are counting the days they still have to wait before they reach this milestone. Pity, though, that by the time Belgium wins the title it may collapse financially, break up politically and cause the next round of the Euro crisis.

Belgium’s woes haven’t escaped the attention of financial markets, with the second spike on Belgium debt in two months coming just last week at the prospect of the country becoming the “next Greece or Ireland”.

Because it’s such a long time ago, let’s remind ourselves about the last Belgian elections. Belgians went to the polls on June 13, 2010 after the previous government had collapsed in April of that year. Incidentally, the reason for the breakdown of the old coalition is the same reason why a new coalition is so difficult to form. The bitter antagonism between the two dominant linguistic groups, the Flemish and the Walloons, are impossible to resolve.

Even on the satirical Le Record du Monde website the Belgian problems become immediately clear. The top left half of the screen is in French, the top right half in Dutch – and for the rest of the information the designers have diplomatically resorted to neutral English. It is a mirror image of a country whose deep divisions now pose another threat to Europe as a whole.

Belgium’s crisis parallels Europe’s troubles. In Europe, the fault lines run between poor nations in need of fresh capital and richer nations getting tired of providing just that. In Belgium the conflict is about the richer, Dutch-speaking North and the poorer, French-speaking South. Ironic as it is, this is quite fitting for a country that is host to many European Union institutions.

There were two winners of last year’s elections. In the French-speaking part of Belgium the social democrats under Elio Di Rupo were victorious; the Dutch-speaking part was won by the Flemish nationalist Bart de Wever. However, speaking of ‘winners’ may be a bit of an exaggeration in Belgium’s fragmented political system. Nationally, de Wever’s Nieuw-Vlaamse Alliantie party received a mere 17.4 per cent of the vote and Di Rupo’s Parti Socialiste only 13.7 per cent. These are no results on which strong political leadership can be built.

Di Rupo and de Wever could hardly be more different in their political goals. Di Rupo and his Walloon compatriots would by-and-large prefer to keep Belgium as it is. This is hardly surprising since the Belgian South is benefitting most from the current state of affairs. Its economy is weak, unemployment is high, and without transfer payments from the North, Wallonia would struggle.

Again unsurprisingly, the Belgian North and its political voice de Wever are unhappy about this arrangement. They demand greater autonomy, particularly in economic and fiscal policy. Of the old Belgium, there is hardly anything they would like to keep. Not the monarchy, which they regard as a relic from ancient times. Perhaps not even the country as such. In an interview, de Wever bluntly explained that Belgium had no future: “It is too small for big political ambitions, and for areas such as tax and social policy it is too heterogeneous. … Belgium is a failed nation.”

Once upon a time, it was claimed that Belgium was united by its love for soccer, beer and the King. But the motto in Belgium’s coat of arms, “L’union fait la force” (“Unity makes strength”), now sounds like a bad joke. In FIFA’s soccer world ranking, Belgium occupies 58th place, just behind Honduras and Romania and only a tad ahead of the football giants of Jamaica. The Belgian beer market is as regionally fragmented as its parliament. And constant admonitions by King Albert II have failed to impress the political adversaries.

This leaves only one factor that is really uniting Belgium, and that is its debt. Belgium was the notable exception in the early years of the euro by using lower interest rates to aid fiscal consolidation. In 1990, Belgium’s debt to GDP ratio stood at 134 per cent. By 2007, this had been substantially reduced to 84.2 per cent. However, in the global financial crisis public finances once again deteriorated so that Belgium currently stands at around 100 per cent debt to GDP.

What would happen to this high level of debt in case of a political break-up is anyone’s guess. Given the difficulty in even forming a coalition government, it is possible that a dissolution of Belgium would fail simply because no agreement on the national debt could be found.

Belgium’s national debt may not only be the last anchor of national unity. It is also its biggest vulnerability. As markets are assessing the fiscal viability of European countries, there are good reasons to be concerned about Belgium. Although the country can point to remarkable consolidation achievements in the past, the political situation has become so messy that nothing should be ruled out, not even a Belgian default. And then it would not be about the Flemish bailing out the Walloons but Europe bailing out Belgium.

The Belgians know that their situation is dire. But they would not be Belgians, practical and good-humoured as they are, if they did not know how to cope with their difficult fate. The Le Record du Monde website concludes with a number of useful links for frustrated Belgians. One of them takes them straight to the Australian Department of Immigration & Citizenship.

Should the Belgians follow this advice, we can only hope they will bring their chocolates and beer along.

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