The Belgian Bond Miracle
Sometimes Belgians (should) have the feeling they are living on another planet.
Just take the news this week. The eurozone peripherals (Greece, Ireland, ...) are wobbling again. The Fed started QE2. The OECD warned that the time for 'normal economic policies' will not come in 2011, but in 2012 at the earliest.
Just take the tour of Belgians neighbours. Germany has an austerity program of 80 bln euro. France has one of 100 bln euro (although only 45 bln cuts), the Netherlands are planning to cut away 18 bln euro and the UK is the European austerity champion with a 110 bln GBP plan of cuts and new taxes.
And there we are. A government debt that is nearing 100% of GDP, no government in action and no austerity at all. A country on cruise control in an era of QE2 and Eurozone worries. What is the Belgian magic? Why do Belgian government bonds continue to fly under the radar of international investors?
There a couple of reasons.
1. As Nouriel Roubini pointed out, some months ago, Belgian government debt is high, but not as high as in Greece.
2. Belgium didn't have a substantial stimulus program. This would have been difficult, as the Belgian economy is small and very open. The upside of this is that there were not major stimulus costs, as in e.g. the UK.
3. As the Belgian economy is very open, it profits from the strong German economic recovery. The trade ties are strong.
4. The Belgian government is very poor, but the Belgian families are very rich. Government debt is 100% of GDP. But the deposits and the fixed interest securities that are held by families are also worth 100% of GDP. The entire net financial assets of Belgian individuals are worth 715 bln euro, or more than 200% of GDP
5. A large part of the Belgian government debt is owned by Belgian individuals, although it is shrinking. Approximately 60% of the debt is now in foreign hands.
6. The current account is positive (unlike e.g. Greece), although it is shrinking.
7. And as Paul Krugman pointed out last year, Belgium has proved in the 70ies that an advanced country can have a debt of 120% of GDP without provoking a financial crisis.
All these things are good news in way, but also bad news. It means there is not enough pressure on politicians to do what is needed: preparing for the costs of the ageing population, creating more jobs, reducing government debt, reducing high taxes on labour, and improving the education and job results of immigrants, especially in Brussels.
Reacties