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Belgian Economy showing signs of weakness

January 10, 2012

Belgian Prime Minister Elio Di Rupo meets with EU Commissioner for Economic and Monetary Affairs Olli Rehn at the European Commission headquarters, in Brussels 12 December 2011. | BELGA PHOTO Bernal Revert

After 18 months of protracted dispute, Belgium reached agreement on a new government at the end of last year. A new crisis is emerging though – one that has struck at most of Southern Europe and is now moving north. Belgium has the EU’s fifth-highest debt in Europe according to Businessweek and has a deeply divided workforce between the robust white-collar economy of northern Flanders and the post-industrial south of Wallonia.

On January 6, the European Commission rejected Belgium’s proposed budget for 2012 for exceeding the 3.1% annual deficit-to-GDP (Gross Domestic Product) ratio required of EU members under the Maastricht Treaty. According to Belgian government predictions, their budget would assume a 0.8% growth rate and incur a deficit that would represent 2.8% of GDP. The commission agreed with the growth rate figure, but not the deficit-to-GDP ratio. The commission thus rejected the Belgian budget and gave two options: cut 1.2 to 2 billion euros out of the budget or institute a spending freeze until the implementation of the new budget in February. Belgium chose the latter, equaling 1.3 billion euros in savings.

If the EU decides that this freeze does not make Belgium fit under the Maastricht criteria, it will face sanctions from the EU. This potential for sanctions was agreed upon in early December in Brussels. Belgium is in a sense the guinea pig who will be testing the veracity of the EU’s long-awaited enforcement mechanism.

King Albert II of Belgium

Belgium’s King Albert has also joined in the austerity parade. Belgium is required to keep up an automatic pay raise for its royalty to adjust for inflation (about 3% this year, or €350,000). The King has decided to use this money to pay for upkeep of the royal estate and thus freeze the €10.8 million salary he gets from the state. Other monarchs across Europe have taken to similar patriotic cost-cutting endeavors, including trimming the maintenance bill for Buckingham Palace the Dutch royal yacht.

The end is far from over for Belgium. Luc Coene, Belgian finance minister, predicted “very anemic growth and” at best, to a 0.5% contraction at worst, for the first half of 2012. The EU commission will issue opinions on five EU economies tomorrow, Belgium being the most significant of the five. If the European Commission decides to impose sanctions on Belgium, it may serve as a warning for the rest of the Eurozone. Stay tuned to find out their verdict.

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One Comment leave one →
  1. asdsa permalink
    August 25, 2012 9:34 pm

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