6th Jul 2022

Belgian bond costs soar after government talks fail

  • Belgian politics is worrying the markets (Photo: O Palsson)

The latest collapse in talks to form a government in Belgium has sent investors running, amid fears the core eurozone country could face similar problems to Greece.

The country’s cost of borrowing money soared over five percent on Tuesday (22 November) to an almost-10-year high, after would-be prime minister Elio Di Rupo handed in his resignation on Monday, marking a preliminary end to a-year-and-a-half-long attempts to reach a deal.

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Belgian EU trade commissioner Karel De Gucht warned earlier this month that his country might be “next” on the markets' radars if it did not manage to agree and draw up a budget for 2012. Belgium's debt is almost at 100 percent of GDP - the third-highest in the eurozone.

The European Commission expects to receive the new budget by mid-December. Next year's spending programme will have to see cuts of more than €11bn to stay below the EU-imposed deficit ceiling of three percent.

Before the summer, the commission also told Belgium it had to introduce a series of austerity measures, including cutting spending on pensions and unemployment benefits to keep its debt down.

Government negotiations have been marred by disagreement on how to implement the commission's recommendations. Di Rupo’s Socialist Party sees them as “a source of inspiration”. The liberals, who are being blamed for the breakdown in talks, see them as obligations.

“I am not going to make a budget that will be rejected three weeks later. If the other parties declare that they are willing to translate the European requirements into a budget, then things can go quickly,” said Alexander De Croo, leader of the Flemish liberals on Monday evening.

The situation represents something of a turnaround in the eurozone crisis. While governments in Ireland, Portugal, Greece and Italy have been toppled by the eurozone woes, in Belgium the crisis is preventing a government being formed.

The king, recovering from surgery to his cheek, has once again called for “calm” and “a period of reflection”. He met the leaders of four negotiating parties on Tuesday. The liberals are expected to arrive at the castle of Ciergnon, in the Belgian Ardennes, on Wednesday morning.

EU commissioner: Belgium could become the next Greece

Belgian EU commissioner Karel De Gucht has warned that his country could be in line to suffer a Greek-and-Italian-type loss of market confidence if it does not quickly form a new government.

Belgium rescues troubled bank amid ratings warning

The Belgian state has said it will pay €4 billion to purchase Dexia, a Franco-Belgian-Luxembourg bank with high exposure to Greek debt. The move comes two days after Moody's warned it may downgrade Belgium's rating.

Germany no longer immune to crisis

Germany had significant trouble offloading its bonds on Thursday in a sign that the eurozone crisis has spread to the very heart of Europe.


The euro — who's next?

Bulgaria's target date for joining the eurozone, 1 January 2024, seems elusive. The collapse of Kiril Petkov's government, likely fresh elections, with populists trying to score cheap points against the 'diktat of the eurocrats', might well delay accession.

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