One more guest post to come, plus a farewell; I had more of my own in mind, but I’ve overrun, again. It’s certainly been demanding, or stretching, and a sharp reminder of what I do and don’t know well, and can and can’t do well; but it was also enjoyable to blether away at you all. And I will half-miss the morning’s bleary thrash through 116 RSS feeds and whatever articles had eyecatching headlines, and nearly all of the NC comments. I haven’t done anything very like that since a not-terribly-successful stint at James Capel Gilts, 20-odd years ago; I doubt whether I have improved all that much at it in the mean time, either.
In all the hubbub around Eurobank liquidity or solvency or whatever you thought it was, triggered by doubts about the ability of Greece and Spain to fund themselves, and possible sovereign defaults, one country, right at the heart of the EU, with a nasty problem, got largely overlooked. But not entirely: Tracy “Argus” Alloway of FT Alphaville managed to keep one of her innumerable beady eyes fixed firmly on Belgium.
The two main horrors are budget (FT AV quoting research house Independent Strategy):
Belgium is a mess. Its sovereign debt to GDP is 100%, up from a trough of 84% a few years ago, and its budget deficit is 5% of GDP.
but most of all political risk:
Unlike the Greeks, who seem to like being Greeks and being in Greece, Belgium is a country with a dearth of nationals proud to be Belgian and where growing swathes of the population want to be in another state of their own creation. This is not a good scenario for taking tough decisions on public debt at a national level and making the necessary political compromises…
Since May, when this article appeared, Belgium has exchanged a crippled coalition government for a crippled caretaker government, which isn’t progress; and the now-largest Flemish party, the New Flemish Alliance, is openly, though unhurriedly, secessionist. There are seven parties still negotiating to form a government, six weeks after the elections.
Nor, of course, has it made any difference to the underlying ethnic divide, which is spectacular. Belgium is pretty much two countries already, apart from Brussels itself, where French (Walloon, southern part) and Dutch (Flemish, northern part) speaking populations do mix, though Brussels is an enclave within the Flemish part, just to make things a bit more complicated. Away from Brussels, local governments in both Wallonia and Flanders can pass laws prohibiting the use of the minority language, and they do. Not much sign of common national feeling there.
The new pressure on this rickety political entity now arrives in the form of a leak from the Belgian independent budget watchdog. From the FT:
The solidity of Belgium’s public finances was called into question on Tuesday after an independent budget watchdog challenged the government’s tax revenue forecasts and warned of higher budget deficits.
The leaked report from the federal government’s monitoring committee raises questions as to whether Belgium can meet commitments to bring its public finances in line with eurozone budget rules.
Cue, naturally enough, both despair about the institutional capacity to meet the budget commitments:
“In normal times, taking such measures might be straightforward,” said Philippe Ledent, economist at ING Belgium. “The problem now is that there is no government that can take them.”
and a likely sharpening of the ethnic divide:
The way in which public spending could be cut dominated the electoral campaign in Dutch-speaking Flanders, with a consensus for more belt-tightening seen across most of the political spectrum. But the issue hardly featured in Francophone Wallonia, where the victorious Socialist party has vowed to oppose any form of budget austerity.
It’s ironic that having waved Belgium into the Euro, based on its centrality to Europe, one of the original Six, integral with Benelux, and so on, the pols could hardly reject Greece et al for budget dodginess (h/t MA for this reminder). Now it’s all coming back to Belgium.
So where do we go from here? The issue will get right onto the market’s radar eventually; and it looks much less short-term tractable than the Greek or Spanish situations. If there is to be a divorce, there will be a good tussle over the ownership of the assets first; or rather, over that 100%-of-GDP debt.
For much, much more on how Belgium got to be like that, on the mean and very long-term ethnic grudge match going on behind the scenes, and on what might happen next, try this from Bedlam (hat tip: Scott F.).
Update: But the Bedlam piece gets the identity of the largest Flemish party wrong (it’s the Nieuw-Vlaamse Alliantie, not Vlaams Belang) and NATO is staying in Brussels.
There is a growing risk of a faster than expected dissolution of Belgium which will result in sovereign default; this is based on a belief in the inability of the individual nations within the euro zone, let alone the EU institutions themselves, to realise that as nations unravel, speed is of the essence.