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Belgium’s Leaders Seek Exit From Political Impasse as Bond Spreads Widen

07 January 2011 03:59 (UTC +04:00)

Baku-APA. Belgiumâ€™s political leadership cast about for solutions to the impasse that has left the country without a full-time government and pushed up the costs of servicing Europeâ€™s third-highest debt burden, APA reports quoting bloomberg.com website.

Belgian bonds tumbled yesterday after the failure to restart seven-party talks to form a government almost seven months after inconclusive federal elections heightened the risk of a downgrade in the countryâ€™s sovereign-debt rating.

â€œWeâ€™re back into a serious crisis,â€ Elio Di Rupo, head of the French-speaking Socialists, the second-biggest force in parliament, told RTBF television late yesterday. â€œPeople have really had enough -- this situation is intolerable.â€

The constitutional feud between the Dutch-speaking north and Francophone south leaves Belgium with a caretaker administration to confront the budget deficit as concern mounts that Europeâ€™s sovereign-debt crisis will escalate.

Belgian 10-year bond yields rose 12 basis points to 4.07 percent yesterday, pushing the extra yield over German bonds up by 15 basis points to 115 basis points. The spread, a gauge of the risk of investing in Belgium, has risen from 79 basis points on election day June 13.

King Albert II was pondering how to pick up the pieces after two parties in Flanders, the richer northern region, rejected a compromise designed to lessen federal powers and restart coalition talks that broke down on Sept. 3.

Political Troubleshooter

The author of the compromise, Johan Vande Lanotte, a Flemish Socialist, asked to give up his role as political troubleshooter. The king declined to let him go, saying in an e- mailed statement that the next royal move is â€œon holdâ€ until the mediator is summoned back to the palace on Jan. 10.

â€œThere isnâ€™t sufficient readiness to start the negotiations,â€ Vande Lanotte told reporters in Brussels late yesterday. â€œYou can lead a horse to water, but you canâ€™t make it drink.â€

Standard & Poorâ€™s Ratings Services said last month that the longest-ever post-election stalemate in Belgium -- now at 208 days, surpassing the 194-day marathon of 2007 -- may lead to a cut in the countryâ€™s AA+ credit rating.

Belgiumâ€™s debt was 98.6 percent of gross domestic product in 2010, trailing only Greeceâ€™s 140.2 percent and Italyâ€™s 118.9 percent among the 17 countries using the euro, according to European Commission estimates.

Political leaders began considering new formulas for forging a governing coalition, including by widening the circle of parties involved in how to manage the linguistically split country of 10 million people that is home to European Union and North Atlantic Treaty Organization headquarters.

Dominant Force

The clash boils down to â€œwhoâ€™s in favor of the end of Belgium,â€ Jean-Michel Javaux, co-leader of the French-speaking Greens, said on RTBF.

Bart De Wever, head of the Flemish nationalist N-VA party, the top vote-getter in the June election, sought a face-to-face showdown with Di Rupo, whose Socialists are the dominant force in the French region.

â€œThe moment has come for the leading actors to sit together and agree on a path forward,â€ De Wever said on VRT television. He said he isnâ€™t calling for new elections or the breakup of Belgium.

For his part, Di Rupo offered to include representatives of the French-speaking or Dutch-speaking Liberal parties in the quest for a compromise, meeting a longstanding demand by the Flemish nationalists.

More Clout

â€œWe are open to every form, every formula for a coalition of democratic partners,â€ Di Rupo, who led the first failed bid to corral the seven parties into a coalition, told RTBF.

Flanders has gradually gained more clout in five constitutional overhauls in four decades, as its growing wealth surpassed the sunset industries that concentrated power in the French region for more than a century after Belgiumâ€™s founding in 1830.

Home to companies such as Anheuser-Busch InBev NV and the Antwerp port, Flanders generates annual output per person of 31,067 euros, according to 2009 figures. Wallonia, the French- speaking south, is weighed down by the legacy of coal and steel industries, with output per person of 22,868 euros.

The immediate focus is on how Belgium will save an additional 1.8 billion euros ($2.3 billion) to meet an EU target of cutting the deficit to 4.1 percent of GDP in 2011 from an estimated 4.8 percent last year.

De Wever rejected the setup of an emergency cabinet, saying it would be nothing more than â€œminding the shop.â€

The deadlock made it more expensive for investors to insure holdings of Belgian bonds. The cost of protecting Belgian debt against non-payment for five years, using credit-default swaps, climbed 16 basis points to a record 235 basis points yesterday, according to CMA prices in London.