Belgium faces uphill task as it pays record interest rate to sell debt

THE TASK facing incoming Belgian prime minister Elio Di Rupo was underlined yesterday as the country paid a record interest rate to sell debt, an auction that followed a downgrade by rating agency Standard Poor’s.

Almost 18 months after an inconclusive election, Mr Di Rupo struck a deal at the weekend on a €11.3 billion austerity budget for 2012 and other cost-saving measures to follow in 2013 and 2014.

The weekend deal, which came one day after the SP downgrade, finally clears the way for Mr Di Rupo, leader of Belgium’s French-speaking socialists in the southern part of the country, to start forming his cabinet.

At a time of tumult in the euro zone, the political stalemate in the country has undermined confidence in Belgian debt.

The country raised €2 billion in debt yesterday but the budget deal failed to prevent a steep rise in its borrowing costs. The interest rate on 10-year bonds rose to 5.65 per cent, up from 4.37 one month ago.

Mr Di Rupo anticipates that his administration will be formed within a week, meaning the caretaker government in place since the spring of last year will soon leave office.

Six-party talks between the country’s linguistically divided leaders lingered for many months over constitutional reforms after a surge in support for a Flemish nationalist party that wants an independent state for the Dutch-speaking northern half of Belgium.

The agreement was welcomed by EU economics commissioner Olli Rehn, who has been pressing Belgian leaders to sign off on a budget for weeks.

While Mr Rehn’s spokesman said the deal was “very encouraging”, he withheld judgment on the plan itself. “We’ll have to undertake a detailed analysis of the agreement on the basis of documents which have yet to be submitted to the Commission.”