Debt fears and an international press conference
Bart De Wever, president of the N-VA, Tuesday morning during his press conference. (Didier Lebrun / © Photo News)
It seems that it was an article in Financial Times that started it, but here it is: bond investors are keeping a close watch on Belgium. As the title of the FT suggested, they fear a new time of inertia will create debt problems.
The spread between the Belgian ten year bond and the German one is rising, but at least Monday other European countries were targeted as well. It wasn't only a Belgian issue, it seems.
In the campaign for the elections of the 13th of june, this spread is now used as an electoral weapon. The Flemish nationalist party N-VA, which is heading for a victory, was accused of destabilizing the country and letting the people paying cash for that. On Tuesday morning, the N-VA gave (apparently in six languages) a press conference for the international press in order to explain that it doesn't want a revolution. As we explained in our previous blog, the N-VA wants a steady evolution to a con federal model in which the regions become more important than the federal state.
In my opinion, investors have three worries:
1. The first one is that negotiations for a new government take a very long time and lead to political inertia, meaning that no action is undertaken to cut down debts.
2. The second one is that a new government doesn't want to make the necessary budget cuts. While the government think tank, the Planbureau, estimates that the government has to cut 22 billion euro in 2015, the biggest party in French speaking Belgium, the PS, is promising 7 billion euro of new expenditures and no cuts.
3. The N-VA wants a confederal state for now, but what will happen in the years to come.
Frankly, I think the last one is not a big worry. N-VA is now heading for a big victory, because a lot of people are fed up with inefficient Belgian politics. Polls show however, that even in Flanders there is no majority that favors an independent Flanders. If the N-VA goes for the full independence, it will be very difficult to obtain the victory the polls now show.
The second one is a real worry as well. The only promising signal is the track record of the PS. Although they never explained this to their voters, they managed to make budget cuts in the past when the economical reality check came: high unemployment and budget deficits in the seventies, and the struggle to join the euro in the nineties. Some pressure on the Belgian bond market could very well create this reality check the coming days, weeks and months.
The fear of inertia will be the most difficult problem to face. But then again, what is new? Even the moderate CD&V couldn't move things for the last three years. The main problems of Belgium are still here: a center left French speaking part of the country and a center right Flemish part and a federal government that has to unite this two mandates of the people in one policy.
The point the N-VA makes, is that it wants to adjust the Belgian state structure so as to be able to cope with this. This will be difficult, but two silver linings are worth mentioning here: this new government will not have to worry about federal or regional elections until 2014. This is an unusual situation in Belgium. And the second one is the external pressure of the bond markets. As the Dutch football legend Johan Cruyff famously said: every disadvantage has its advantage.
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