Belgium commits to cutting deficit

 

Belgium's caretaker government committed today to pull its budget deficit below 4 per cent of annual output this year in an urgent effort to reassure markets, and said it could outline cuts next month.

Belgium's debt of nearly 100 per cent of gross domestic product (GDP) and lack of new government for seven months has led economists and financial speculators to wonder whether it could follow Greece and Ireland into a financing crisis.

The premium investors demand to hold 10-year Belgian government debt compared with German equivalents has neared the euro lifetime high of 149 basis points in the past week, after the latest push to form a government failed.

Yves Leterme, who has stayed as prime minister for a record 213 days since an inconclusive parliamentary election, promised new cuts at the urging of King Albert II, who made an unusual intervention this week to call for a tighter budget.

"In mid-February we will take initiatives that will improve the deficit in such a way that we will exceed the targets agreed with the European Union," Mr Leterme told a news conference to present 2010 budget figures.

Finance ministry officials said the budget might come into force in March.

Mr Leterme and his ministers acknowledged that Belgium's gross debt was the third highest in the euro zone in 2009 and possibly only overtaken by Ireland last year.

However, they noted that the public sector debt increased by just 1 percentage point last year, the smallest rise of any euro zone member.

"Our situation today is much better than in other countries," Mr Leterme said, after describing the 2010 budget figures as "excellent" albeit still negative.

Belgium's deficit fell to 4.6 per cent of gross domestic product (GDP) last year from 6.8 per cent in 2009, better than a previous forecast of 4.8 per cent.

It had committed to reducing that to 4.1 per cent this year, but Albert urged the stand-in government on Monday to go further. Like other European monarchs, the Belgian king traditionally remains outside political and economic debate.

Mr Leterme said Belgium's deficit this year would preferably be below 4 per cent.

Finance minister Didier Reynders later told reporters the figure could even be as low as 3.5 per cent if Belgium's regions and local communities played their part.

Debt last year, at 97.2 per cent, remained below the psychologically significant 100 per cent level. The government forecasts it will rise to 98.1 per cent this year, even without the additional measures it intends to take.

The prospects of a government forming looked slightly less bleak late last night after the king asked a mediator charged with resolving the country's political crisis to return to work, supported by the heads of the two largest parties.

Reuters