A Flemish Octopus

The first formal steps towards a new government have been taken. King Albert II Monday summoned N-VA-president Bart De Wever and PS-president Elio Di Rupo. Yesterday the two winners of the elections spoke each other for the first time. (It is said they once met each other at a tennis game, but they didn't speak.) Nobody knows where they met, or what they said. That is a good sign.

It is expected that any day now the king will give a senior politician the task to make preparations for negotiations but not start them. That last task if for someone else, who if he succeeds, becomes prime minister. 

In our last blog we focused on the silver linings, but as one can't optimistic every day, let's give some background on one of the difficulties: a state reform.

Mr Di Rupo said he understands that Flanders wants a state reform, but also indicated which lines can not be crossed. One of them is splitting up social security. This is a sensitive point because Flanders, as a region, is richer than the French speaking part of Belgium.

Mr De Wever already made clear that he doesn't want to break up the country in a revolutionary big bang, but is seeking a gradual evolution to a more independent Flanders. He also is very careful to avoid situations in which he could be coined as an extremist separatist. But he also has lines that can't be crossed. For those reasons, it is expected Mr. De Wever will use the Octopus Note of the Flemish government as a bargaining tool.

This Octopus Note is one of the curiosities of Belgian politics and needs a little explanation. In this note, the coalition partners of the Flemish Government of Yves Leterme (2004-2009) agreed on how they saw a better organization of the Belgian state. In 2009 the coalition partners of the new Flemish government confirmed the note. 

This means that four parties are politically bound by the document: the N-VA of Bart De Wever, the Flemish christian-democrats, the Flemish socialists and the Flemish liberals. After the elections of June 13th, these parties have 70 of the 88 Flemish seats in the federal Lower House.

This makes the Octopus Note a very elegant and at the same time powerful instrument for Bart De Wever. By using it in negotiations, he can claim he is a reasonable man. And the three traditional Flemish parties will have to agree. For the French speaking politicians there is no way around it. This is the Flemish line not to cross. 

So what does the Octopus Note say?

First of all it states that the regional governments should get the power to fully decide on labor policy. Now some of these policies are federal. It is expected that this will not be the biggest problem.

More difficult will be health policy and family policy. It means that the regions would pay children allowances and reimburse medical costs. This will be very difficult for the French speaking politicians to accept.

The four Flemish parties also ask more fiscal autonomy. They want almost full political power over the income tax and the VAT. This will also be difficult to accept for French speaking politicians, as they fear to be left behind with a low income population. The latter is all the worse, it is feared in French speaking Belgium, if Brussels and Wallonia have to pay for their own health insurance and family allowances.

In the Octopus Note it is also written that the electoral district Brussels-Halle-Vilvoorde has to be split up and that an expansion of the official bilingual Brussels region (which is geographically completely surrounded by Flanders) is out of the question. This will not be easy for French speaking politicians neither. Even the PS asked for an expansion of Brussels in the election campaign.

When it comes to state reform, Elio Di Rupo might find out he is not only dealing with Bart De Wever. He is dealing with this strange but nasty animal: a Flemish octopus.

Bart Haeck

The Ipod of countries? Or the model of distrust?

What is Belgium like?

The blog Money Illusion calls it the Ipod of countries.

The Economist calls it a model of distrust.

Belgian Affairs calls it a couple that wants a divorce but is staying together for the children.

Bart Haeck

Condemned to each other

They stand for exactly the opposite of each other, but after the elections of June 13th, they are condemned to each other: N-VA-president Bart De Wever and PS-president Elio Di Rupo. The first one is a Flemish nationalist, who doesn't want more taxes and favors a very big state reform. The second one is a strong supporter of Belgium as we know it, doesn't want an austerity policy and doesn't like state reform.

They share nothing, except this: they are the biggest political parties in their part of the country.

The next few days will have to show if they can work together after all. There are some reasons why maybe, just maybe, they can work it out.

As we told already, sooner or later there will be pressure of financial markets to find an agreement. At the same time, there are no elections in the first three years, which reduces the pressure to disagree just because you might lose voters support.

But after the elections, three reasons emerged on top of that. The first is that the N-VA and the PS are by far the largest parties. It is clear they are in charge and they can even afford to lose some votes without getting into problems. This wasn't so in the last federal elections in 2007.

The second one is that Mr. De Wever and Mr. Di Rupo seem to understand they are condemned to each other. Bart De Wever said he wants to cooperate with the French speaking politicians. Di Rupo said he understands Flanders wants a state reform. At least, that's a start.

The third one is that a mirror government, as we explained in our last post, has become very likely and even has the 100 out of 150 seats in the lower house of parliament that are required to pass a state reform.

Nobody said this would be easy. But there is a chance Bart De Wever and Elio Di Rupo can work it out.

Bart Haeck

Mirror, mirror on the wall

Mirror, mirror on the wall, who will gain most political power of all? As the election campaign nears its nervous end, the left wing parties warn for a right wing austerity government while the right wing parties warn for a left wing tax government. The most educated guess in the Belgian political world however, is that after the elections of this Sunday a mirror government will emerge: a government with the same political parties that are already in the regional governments of Flanders, Brussels and Wallonia.

• First of all, the situation in the French speaking part of the country will be easier to analyze than in Flanders. Only four parties compete with each other, not seven as in Flanders and it is expected the results will be clear: the liberal party (MR) will lose, while the socialist party (PS) and the Greens (Ecolo) will win. The fourth party, the Christian-democrats will probably stay the little sister of French speaking Belgium.


• Socialists, Greens and Christian-democrats are all ready together in the Brussels and Walloon governments. So the election result will be seen as a mandate to make the same coalition on the federal level. It is called ‘the olive tree’.


• As the Flemish situation is more complicated and will be more difficult to analyze, there will be a temptation to make the same olive tree in order to not complicate things even more. The only problem is that the N-VA (who are short term confederalists, but long term separatists) will be the big winner of the elections, if we may believe the polls.


• Two forces could draw the four of them in the federal government. The first one is that in Flanders the N-VA, the  socialists and the Christian-democrats already work together in the Flemish regional government. The second one is that the French speaking Greens will want their Flemish partners with them in the government, to make the green case stronger.


• So there you have it: an olive tree of socialists, greens and christen-democrats, with a little help from the N-VA. In this same scenario, the N-VA, will not be too eager to join the government. It wants a big split up of Belgium and it’s social-economical policy is rather right wing. But in 2007 it supported the government without joining it, as long as there was no agreement on a major state reform. This could very well happen again. In that case the president of the French speaking socialists, Elio Di Rupo, could become prime minister. From the opposition, the N-VA will work hard with the government on a state reform.


• And last but not least: the next four years will not be a walk in the park. In 2015 Belgium needs to execute an austerity program of 22 billion euro. It is impossible to do this if the federal and regional governments argue all the time. Choosing the same political parties for all the governments (that is: the same on the Flemish side and the same on the French speaking side) could be a way to downsize that risk.

But, then again, even an educated guess stays a guess. The voters will decide Sunday. If, just to say one thing, the Flemish Christian-democrats will suffer as badly as the Dutch Christian-democrats of Jan-Peter Balkenende earlier this week, even the mirror-coalition will become impossible.

Bart Haeck

Nouriel Roubini on Belgium

  

Nouriel Roubini in our newsroom

Last night Nouriel Roubini, the famous Cassandra of Columbia University, visited De Tijd and L'Echo to give a lecture on the future of capitalism. He also made an assessment of Belgian economy and politics. It goes like this:

According to Roubini, Belgium isn't Greece.

1. Government debt is very high, but not as high as in Greece.
2. The budget deficit is significant, but not as dramatic as in Greece.
3. The Belgian economy has lost competitiveness, but not thàt much, said Roubini.
4. There are important trade ties with Germany, the engine of the Eurozone.
5. The Belgian families save money (and have no debt problems).
6. And the current account is far more better than in Greece.

If there is one thing that has to change, it is this: Belgium needs a stable government.

The other remedies Belgium needs, apply to the whole of the eurozone as well. Roubini said the eurozone will have to combine austerity with growth, which isn't an easy task. In order to achieve it, the ECB has to lower its rates and use quantitative easing. European countries that do quite well, such as Germany, need to make an effort to stimulate their domestic market, in order to improve demand. And the euro should drop below parity with the dollar, which will compensate part of the European competitiveness problem and stimulate export.

But it won't be a walk in the park. If monetary and budget stimulus is halted too early, a double dip could occur, Roubini said. If it is kept too long, it could create uncontrollable government debt and high inflation, which could create a recession as well. Searching for the exit? You'll be damned if you do and damned if you don't, Roubini said.

But let's stick with the good news: Belgium isn't Greece. Paul Krugman said that a year ago, Belgian Affairs agreed with it earlier this year and now Roubini confirms. Mind though, that he didn't agree fully with Paul Krugman. Roubini thinks Krugman underestimates the dangers of high government debts in the long run. Roubini is more pessimistic on that issue. But then again, if your nickname is Dr. Doom, you have to live up to expectations.

Bart Haeck

Debt fears and an international press conference - part two

This may be interesting for the readers of this blog: the full statement of the N-VA, to which we referred in our previous blog.

Statement N-VA – international press conference

 

Tuesday 8 June 2010

 

 

Ladies and gentlemen,

 

Good afternoon. Let me first take a moment to introduce the people sitting next to me: on my right, Geert  Bourgeois, the former chairman and founder of the N-VA party and currently the Flemish Deputy Prime Minister. On my left, Danny Pieters, a professor of Social Security law at the Catholic University of Leuven and Secretary General of the European Institute of Social Security, who is responsible for an important part of our election programme. We have invited you all to this special international press conference in response to the interest the international media has shown in us recently. We hope you will bear with us for the fact that in this exceptionally short election campaign, we do not have time to give separate interviews to each of you. With only 40 days to campaign, we have to focus all of our attention on the priority of campaigning in Flanders. But I understand that – in light of the polls – you are very interested in the N-VA and I am delighted to hear it. That is why I would like to offer you some explanation about who we are, our message for this campaign, and our vision for Flanders, Belgium and Europe. I will start with a brief statement and afterwards, we will be available for about 15 minutes to answer any questions.

 

***

 

Since the beginning of the 20th century, the Belgian unitary state has gradually become replicated. In order to understand this, one thing is key: Belgium is the only federal country in the world without federal democracy. In splitting all of the traditional political parties into separate Flemish and French-speaking parties in the late 1960s, Belgium effectively became the sum of two different democracies. Which, in recent years, have continued to grow apart with ever-increasing speed, in terms of language and culture, but also in socioeconomic and political matters. The result is that it is only getting more and more difficult to continue to pursue a common policy at the Belgian level. After the elections, politicians from these two democracies are thrown together, with completely different programmes, out of which a compromise has to be forged, not only between these two communities but also between 4 or even 6 different political parties. Increasingly, for the Flemish voter, that is leading to a policy that is diametrically opposed to what he has been promised by the Flemish parties. Things cannot continue like this. It has to change.

 

That is why, as the N-VA we are entering this campaign with a call to confederalism. We do not want a revolution. We do not want to declare Flanders independent overnight. But we do believe in a gradual evolution in the direction of Flanders and Europe, whereby a confederal system could act as a gentle intermediate step. Just as outgoing Prime Minister Yves Leterme and European Commissioner Karel De Gucht, who have described Belgium as a “permanent diplomatic conference”, we believe that Belgium will gradually evaporate. Or as a British newspaper wrote some time ago: “If Belgium disappears, will anyone notice?” What is at stake for the N-VA in this campaign is taking this step to confederalism: nothing more and nothing less. Flanders and Wallonia have to acquire maximum autonomy, so that they are able to conduct the policies that are required for their own communities, for their own socioeconomic problems, for the specific characteristics of their labour markets. Only in this way will both constituent entities be confronted with their responsibility to put their financial affairs in order as well. Only in this way can we, in the future, gradually build down our country’s gigantic level of debt and preserve, and preferably reinforce, our model of social welfare. Because there is one striking fact: in this country, we pay the highest taxes in the OECD, but at the same time, we are burdened with a public debt of over 100% of GDP and we take home the lowest benefits and pensions in Western Europe. That is the cost of the inefficiency of the Belgian structures. And this urgently has to change. That is why the N-VA is calling for a confederal system whereby the centre of gravity for policy is shifted to the constituent entities (also referred to as the “Copernican revolution” by Flemish Minister-President Kris Peeters). The two components can subsequently make agreements as to which powers they wish to continue to exercise jointly. For example, the N-VA has no intention of splitting the Belgian Army. That would be stupid. We want to see a European defence force. And the N-VA is also perfectly prepared to stand in solidarity with Wallonia, as long as it is in a transparent, objective and effective manner. In a confederal system, Flanders and Wallonia will also need to establish a socioeconomic convergence treaty with one another. Granting each other greater freedom at the same time as greater responsibility, that is what we’re after. And based on that freedom and responsibility, it will become easier to work together constructively, where possible and desirable. Where that is not possible, each constituent entity will conduct its own policy.

 

The N-VA is also a very pro-European party. We believe in an evolution towards more extensive powers for Flanders on one hand, and for Europe on the other. Like Flanders, Belgium is very small and therefore offers scarcely any economies of scale. That is why the N-VA is resolutely opting for Flanders and Europe as the two most important levels of authority above the local level. Powers whereby the economies of scale are greater than the cost of heterogeneity should be exercised by the EU (such as defence, the currency, for example), whilst for those powers for which the cost of heterogeneity is too great, it would be better if these would be exercised by Flanders, the level that coincides with our democracy. This is, of course, the principle of subsidiarity.

 

***

 

Finally, I would like to add this: I can certainly imagine that in the eyes of outsiders looking at the problems in Belgium, the issue appears to be a problem between two ethnic groups: the Flemish and French-speakers. This is anything but the case. This is not a problem between people. It is a problem of structures and we have nothing whatsoever against “the” Walloons or “the” French-speakers. However, we do have a problem with the Belgian structures. For the simple reason that they are, first of all, not democratic and secondly, not efficient. Because they are not democratic, they lack sufficient legitimacy. And because they are not efficient, they are a threat to our prosperity and our social model. That is our central concern: evolving towards more democratic structures and towards structures that do work and that will ensure that we are able to maintain our prosperity and well-being in the future as well. However, the Belgian structures should have been modified a long time ago, we have lost much valuable time. It is now five minutes past midnight. We urgently need to dare to change things NOW. And that is exactly why voters should vote for the N-VA in massive numbers. Because the N-VA is the only guarantee for this change.

 

We shall see if the voters actually do give us the score on 13 June that is being projected in the polls right now. In any case, we are keeping our feet solidly on the ground. If we are holding this press conference now, it is not because we think that we have already got the deal sewn up, but simply because there has been intense demand from you. Which is something we fully understand and wanted to respond to. And rest assured: if the N-VA does turn out to make a strong showing in next week’s elections, then we will certainly be seeing one another again. But for now, give us one more week in which to campaign full throttle, so that we can convince everyone in Flanders who is considering voting for the N-VA to actually do so. Because it is a matter of vital importance. Thank you.

N-VA president Bart De Wever

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.

Bart Haeck