Belgium: Politicians return to negotiations
August 30, 2011
As a result of the political stalemate, following the June 2010 elections, the country has remained without a government for more than a year. However, politicians have returned to the negotiating table after talks stalled in July, when French-speaking socialist Elio Di Rupo relinquished his duties as mediator. Eight political parties - without the Flemish nationalists NV-A - considered that an agreement to form a new coalition and end the current political impasse was reachable. Nevertheless, politicians agreed that political reforms are necessary before forming a new government. The eight parties insisted that Belgium's federal system of government (the country's federal system is divided into three regions, Francophone Wallonia, Dutch-speaking Flanders and bilingual Brussels) must be reorganized before any socio-economic reforms can be undertaken; a decision that was not welcomed by the markets. Consequently, and on top of the contagion effect from rising concerns about Italian and Spanish debt woes, yields of 10-year Belgian bonds peaked at 4.48% during the trading session on 5 August, the highest level since January of 2009. Politicians will present a revised plan to reform the country's institutions in an effort to accelerate negotiations. However if the stalemate is not resolved in a reasonable time, the caretaker government, led by Prime Minister Yves Leterme will draft Belgium's 2012 budget before the end of the year.
Author: Ricardo Aceves, Senior Economist