Belgium: Political crisis deepens
July 29, 2011
Softer economic growth in the months to come is likely to put additional pressure on the caretaker government to find a solution to the political deadlock that has been in place for more than a year. Following the agreement reached on 21 July by eight political parties, negotiations have stalled once again after Elio Di Rupo, leader of the French-speaking socialists and the mediator tasked to bridge the political gap, tendered his resignation to the king. During his mediator duties, Di Rupo produced a number of proposals, including EUR 22 billion of budgetary tightening by 2015 and greater fiscal autonomy for the regions, in line with demands from the Flemish representatives. Although most parties accepted the majority of proposals, the Dutch-speaking Flemish separatists (N-VA), which hold the majority of seats in parliament, rejected Di Rupo's bid. According to Flemish-nationalist leader Bart De Weber, Di Rupo's proposals did not provide a basis to begin negotiations. As a result, fresh elections are widely regarded as the only solution with the potential to break the stalemate. In the meantime, the caretaker government, led by Prime Minister Yves Leterme, announced that the fiscal deficit for this year will be narrower than previously estimated. According to the government's projections, the fiscal deficit will fall to 3.3% of GDP this year, below the previously estimated 3.6% of GDP. According to Prime Minister Leterme, the reduction was mainly the result of higher-than-expected revenues from social security payments as well as lower-than-anticipated unemployment payments.
Author: Ricardo Aceves, Senior Economist