Belgium’s King Albert II asked Elio Di Rupo to resume budget negotiations and form a government 529 days after elections as the country runs out of time to draw up a 2012 budget, reduce the deficit and avoid European Union sanctions or a credit-rating cut.
The monarch turned down Di Rupo’s request to stand down from leading the coalition talks and urged the six parties involved to form a government, the royal palace said yesterday following a meeting of Di Rupo, 60, with the king in Ciergnon. Investors continued a selloff of Belgian government bonds today, sending yields to the highest level in 11 years.
Di Rupo “has sought a brief period of reflection to explore the possibility of an agreement that is acceptable for the six parties,” according to the palace. King Albert asked all parties “to make the additional effort that’s needed to complete budget negotiations.”
Belgium’s six-party coalition talks ran aground this week as Liberals and Socialists clashed over how to cut the budget deficit to 2.8 percent of gross domestic product next year. The nation could face EU sanctions for failing to tackle a shortfall that’s projected to widen to 4.6 percent of GDP next year. Moody’s Investors Service last month became the latest credit- rating company to say it may cut the country’s credit standing, currently ranked the second-highest investment grade.
The yield on Belgium’s 4.25 percent securities maturing in September 2021 rose 11 basis points to 5.60 percent at 1:52 p.m. in Brussels, after reaching 5.61 percent, the highest since November 2000. Two-year yields, which soared 65 basis points yesterday, climbed 13 basis points to 5.07 percent.
Belgium is due to sell bonds on Nov. 28, offering securities due in March 2018, September 2021, March 2035 and March 2041 in the scheduled auction. Italy and France will also sell bonds next week after Germany failed to get bids for 35 percent of the 10-year bonds offered for sale yesterday.
It’s the second time the Belgian monarch has refused to accept Di Rupo’s resignation offer since the president of Belgium’s French-speaking Socialist Party was appointed to lead government-formation talks in May. Di Rupo sought to quit two days ago after the Liberals from both sides of Belgium’s linguistic divide refused to accept his latest proposals for a 2012 budget.
Those proposals included 6.6 billion euros ($8.9 billion) of additional taxes even as the European Commission told Belgium to focus on spending cuts to narrow its budget deficit, Alexander De Croo, the leader of the Flemish Liberal party, told public broadcaster VRT after the talks broke down on Nov. 21.
Belgian coalition negotiators assumed the economy’s expansion will slow to 0.8 percent next year, which would require 11.3 billion euros of spending cuts or additional tax revenue to cut the deficit to 2.8 percent.
That figure includes health-care spending increasing by 4 percent above inflation next year and explains the difference with a 9.6 billion-euro projection published by Belgium’s High Council of Finances.
Belgian Prime Minister Yves Leterme said he will make provisional budget proposals at a scheduled meeting of his caretaker administration today, adding that it’s up to the coalition negotiators to draw up a 2012 budget that meets the deficit-reduction goals agreed with the European Commission. Leterme spoke on VRT television after the publication of the royal palace’s statement.
European Union Economic and Monetary Affairs Commissioner Olli Rehn reiterated yesterday that Belgium must take action to meet that goal, saying in Brussels that “it is essential to adopt the necessary measures to meet the fiscal target of below 3 percent next year, 2012, in time before the six pack will enter into force.”
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