Morning all. A spot of short term cover for Yves, who will be back later today after a mini-epic, with the head of Medusa maybe.
In Euroland, Ireland (on which more later if I have time), Portugal (whose banks turned out to need still more funding help from the ECB in August) and Greece (where there is a continued run on bank deposits – they’ve now lost 11% of their deposit base since January, and one bank, National Bank of Greece, now has to raise new capital) are hogging the market’s attention, with CDS and 10-year spreads over German government bonds widening sharply.
In the mean time, the situation in my favourite Eurosleeper, Belgium just got a little more critical. Negotiations to form a new government, which have been dragging on since May, broke down last Friday. Not terribly surprising, and in fact pretty routine for Belgian politics, but what seems to be new is that for the Francophone Socialist Party, talk of the end of Belgium as a national entity is starting to be taken seriously. So far, secession has been the agenda of a minority: the now largest Flemish party, Nieuw-Vlaamse Alliantie. From Reuters:
Friday’s collapse of coalition negotiations, almost three months after a parliamentary election, caused senior French-speaking Socialist Laurette Onkelinx to warn that a divorce was now in sight.
“We must start preparing for the end of Belgium,” she told Sunday’s edition of La Derniere Heure newspaper.
Rudi Demotte, president of the French-speaking region of Wallonia, told Belgian radio that francophones should start to consider their options, including a future without Belgium.
Now, this could be the Socialists pushing back at their own base, or other parties, for more negotiating room, or even just (very high-risk) petulant grandstanding after four unproductive months at the negotiating table. It certainly seems to mean exactly what it says, though. Elucidation from locals is again most welcome (the comments were very useful last time – thanks to all).
At the moment, 10 year Belgian government bonds yield just 70bps more than Germans, so the market is discounting neither secession in Belgium, nor the continued failure to form a government capable of sorting out the Belgian budget. This impasse could drag on much longer (there is still only a caretaker government, and new mediators have been appointed to get negotiations for a new coalition back on track).
That is business as usual in Belgian politics, and, by itself, even in these febrile markets, may not cause any fireworks. But if it begins to be clear that the secessionist idea really is getting wider traction on both sides of Belgium’s ethnic divide, those bond spreads will start to go Greek-sized, and worse, and not inch by inch, either; and voila, we have a sharp crisis right at the centre of Europe, not the periphery.
So let us hope that Laurette Onkelinx, and others behind the scenes, no doubt, are knocking the right heads together; umm, if that’s how you promote intra-national harmony.