Belgian government collapses, economy at risk

Belgian government collapses, economy at risk
Copyright by Reuters
April 21, 2010
http://news.yahoo.com/s/nm/20100422/wl_nm/us_belgium_government


Belgian PM Leterme pauses during a news conference in Brussels Reuters – Belgian Prime Minister Yves Leterme at a news conference in Brussels April 20, 2010. REUTERS/Francois …
By Antonia van de Velde Antonia Van De Velde – 1 hr 40 mins ago

BRUSSELS (Reuters) – Belgian Prime Minister Yves Leterme's government collapsed on Thursday after the Flemish liberal party pulled out of his five-month-old coalition, causing a crisis that could damage its fragile economy.

Leterme, 49, tendered his government's resignation to King Albert after an emergency cabinet meeting, but the monarch did not immediately decide whether to accept it.

"The king and the prime minister jointly underlined that, in the current circumstances, a political crisis would be inopportune and would seriously damage both the economic and social well-being of the citizens and the role of Belgium in Europe," the palace said in a written statement.

Without the backing of the center-right Open VLD, the remaining four parties in government still had 76 of the 150 seats in the lower house of parliament but the coalition would have found it hard to govern with such a slim majority.

Open VLD said it had lost faith in the government, which groups parties from center-left to center-right, because it had failed to resolve a dispute between French- and Dutch-speaking parties over electoral boundaries around the capital, Brussels.

"We have not agreed on a negotiated solution and therefore Open VLD no longer has confidence in the government," said Alexander De Croo, the party's chairman.

Economists have expressed concern that political paralysis in the linguistically-divided country of 10.6 million people as it recovers from the global economic crisis would harm the prospects of reducing Belgium's budget deficit.

The government forecasts the deficit will be 4.8 percent of gross domestic product in 2010, and Belgian debt is expected to exceed 100 percent of GDP this year.

The premium investors demanded for holding Belgian debt increased on Thursday. The spread between 10-year Belgian bonds and German bunds had widened to 49 basis points from 43 at Wednesday's close, although this was in line with a widening trend for other euro zone sovereign bonds.

BACK ON THE RADAR SCREEN

"Until now we may say that Belgium was off the radar screen of the financial markets, but this political crisis could bring Belgium back on to the radar screen of those shorting debt markets, speculators or otherwise," said Etienne de Callatay, economist at Bank Degroof in Brussels, referring to the practice of trying to profit from a decline in an asset's value.

Leterme became prime minister for a second time last November when Herman Van Rompuy left the post to become president of the European Union.

Even at the start of his second term, political and economic analysts said they were worried it could prove as unstable as his first nine months in power in 2008, when Belgium lurched from one crisis to another.

Leterme's nine-month struggle to form his first government fueled concerns in the media at the time that Belgium could break apart and raised the risk premium investors demanded to hold government bonds.

Belgium, home to European Union institutions and the NATO military alliance, will not want to let domestic problems drag on because on July 1 it takes over the six-month EU presidency, an organizational role held by each member state in turn.

(Additional reporting by Luke Baker and Ben Deighton, writing by Philip Blenkinsop, editing by Timothy Heritage)