Belgium's King to Tackle Political Deadlock as Debt Woes Mount
Belgium’s king will make a fresh bid to end the 211-day post-election deadlock that has left the country without a full-time government and fanned concern that Europe’s debt crisis will widen.
Belgium’s 10-year borrowing costs jumped to an almost two- year high today and business leaders are demanding an immediate coalition deal between feuding parties in the Dutch-speaking north and French-speaking south.
Belgium is in the crossfire as bond auctions this week in Portugal and Spain will test whether investors have faith in steps by European governments to quell the debt woes haunting the 17-nation euro economy. For the first time, investors view western European government bonds as riskier than emerging- market debt, the Markit iTraxx SovX Western Europe Index of credit-default swaps showed last week.
European leaders may discuss expanding the 750 billion-euro ($965 billion) financial backstop for indebted nations at their next summit, Handelsblatt reported, citing German government officials it didn’t identify. German Chancellor Angela Merkel has said she opposes increasing government-funded aid for euro countries and her chief spokesman, Steffen Seibert, said that “no decision has been taken about widening the rescue fund.”
In Brussels, King Albert II meets today with Johan Vande Lanotte, author of a constitutional compromise that last week failed to jump-start seven-party coalition talks almost seven months after inconclusive federal elections.
Vande Lanotte, a Socialist from the richer Flanders region, awaits a royal response to his plea to be relieved of the job of trying to shepherd the four Flemish and three French-speaking parties back to negotiations that were broken off on Sept. 3.
The caretaker finance minister, Didier Reynders of the French-speaking Liberals, made little headway over the weekend with a call for emergency powers for the current administration to confront the budget shortfall.
Belgium, the third most-indebted euro country after Greece and Italy, needs to save an additional 1.8 billion euros to meet a European Union target of cutting the deficit to 4.1 percent of gross domestic product in 2011 from an estimated 4.8 percent last year.
“We have to work in the coming days on a government with a limited program to deal with the budgetary questions,” Reynders, whose party hasn’t been in the coalition talks, told Het Laatste Nieuws.
The two top Flemish parties rejected that formula, last used to overcome the 194-day deadlock after the election of 2007, then the country’s longest political stalemate.
Belgian 10-year yields jumped 11 basis points today to 4.26 percent, the highest since 2009. The extra borrowing cost over German bonds, a gauge of the risk of investing in Belgium, has risen to 138 basis points from 79 basis points on election day June 13. That is just below the 139 basis points reached on Nov. 30, which was the most in at least 17 years.
The spotlight shifts later this week to southern Europe for sales of some of the $1.1 trillion that euro-region governments need to borrow on bond markets in 2011. Portugal will auction bonds maturing in 2014 and 2020 on Jan. 12. Spain follows on Jan. 13 with the sale of bonds maturing in 2016.
“If yields drift higher again, then we’ll surely be one step closer to the announcement of rescue packages for these two countries,” Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc., said in an e-mailed note to investors.
Both countries were the subject of weekend speculation that they will follow Greece and Ireland in tapping European and International Monetary Fund aid to stave off default.
German Finance Ministry spokesman Tobias Romeis yesterday denied as “speculation” a Der Spiegel magazine report that Germany and France are pressing Portugal to fall back on a support package.
Spain was urged in December by a group of European finance ministers to tap the IMF’s Flexible Credit Line, El Mundo newspaper reported yesterday, without saying how it got the information.
“It is possible that market pressure will force Portugal and Spain into seeking external support during 2011,” JPMorgan Chase & Co. economist David Mackie said in a research note.
Portugal’s 10-year yields rose 50 basis points to 7.10 percent last week, while Spain’s rose 6 basis points to 5.51 percent.
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