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Belgian Deficit Exceeds EU Target on Shrinking GDP, Dexia

Belgium’s budget deficit surpassed the European Union’s target last year as a shrinking economy curbed tax revenue growth and taxpayer funds were used to replenish Dexia SA’s capital following its dismantlement.

The budget deficit widened to 3.9 percent of gross domestic product from 3.7 percent a year earlier, the Brussels-based National Bank of Belgium said today in a statement. The 14.9 billion-euro ($19.1 billion) shortfall compares with the government’s own target of 2.8 percent and a limit of 3 percent under the EU’s excessive deficit procedure. Public debt climbed to 99.6 percent of GDP from 97.8 percent in 2011.

The Belgian economy shrank 0.2 percent last year, curbing revenue from sales taxes and levies on investment income and mortgage registrations. Federal tax receipts rose about 6.1 percent, 0.4 percent short of the amount needed to meet the deficit target, former Finance Minister Steven Vanackere said on Jan. 17. Primary expenditure, including the 2.92 billion euros spent to buy preferred stock in Dexia, rose 4.6 percent to a record 51.3 percent of GDP. Debt-servicing costs rose to 3.4 percent of GDP.

Belgium was given “some flexibility with regard to the pace of cuts needed to reach a balanced budget in 2015,” Prime Minister Elio Di Rupo told lawmakers in parliament today, citing an informal meeting he had with EU Economic and Monetary Affairs Commissioner Olli Rehn in Brussels earlier this week.

The Belgian government aims to cut the so-called structural deficit -- a figure that strips out the effect of the economic cycle as well as one-time expenses and revenue -- by one percentage point to 1.8 percent of GDP this year, Di Rupo said in parliament.

The Belgian benchmark 2.25 percent bond due in June 2023 declined today, pushing the yield premium investors demand to buy the debt rather than German bonds of similar maturity up by 1 basis point to 96 as of 4:12 p.m. in Brussels. That’s the highest so-called spread in more than three months.

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