Belgian Treasury promises no default
By Ambrose Evans-Pritchard
Last Updated: 12:45am GMT 16/11/2007
Mounting concern that Belgium could break apart after 157 days without a government has begun to hit the country's sovereign bonds, causing spreads to suddenly widen to the highest levels in five years.
Months of wrangling between Dutch-speaking Flanders and French-speaking Wallonia has reached crisis point after the Flemish majority broke Belgium's sacred rule and enforced its will by majority vote for the first time in 177 years.
Belgian newspapers have begun to talk about the "death" of the country first created by Lord Palmerston in 1830.
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The spreads over German bonds have jumped from four to 17 as questions grow about the long-term status of Belgium's €278bn (£198bn) public debt.
At 86pc of GDP, it is the third-highest burden in the eurozone after Greece and Italy.
Jean Deboutte, director of risk management at the Belgian Debt Agency, said there was no question of default.
"The spreads have moved and I can understand why people are concerned. Over 50pc of debt is held by foreign investors. The bonds are a liquid, and quoted every second. All I can say is that debt will be repaid whatever happens," he told The Daily Telegraph.
"Splitting up a country is very difficult. The Belgian Treasury has no plan at all. We could think about two systems: one where the debt is guaranteed as a whole by the two regions. Or we could split it between the two regions, but that is not easy because they have different credit ratings.
"Flanders has AAA, while Brussels and Wallonia are lower," he said.
Remy Salters, who covers Belgium for Standard & Poor's, said there was no immediate danger that Belgian will lose its AA+ sovereign rating but warned that this could change if the crisis hits public finances.
"We're following what is going on very closely. If there is any sign of a reversal in fiscal consolidation it would be a cause for concern," he said.
"We don't think a break-up will happen, but it would be hugely complicated if it did. The country has a towering debt that would have to be assigned," he said.
The IMF formula used for the 'velvet' break-up of Czechoslovakia used relative levels of development to divy up the burden, but the debt levels in that case were tiny.
Mr Salters said the Belgian economy has been a star performer, with growth reaching 2.7pc this year.
The debt has been slashed from a peak of 123pc of GDP in the early 1990s by fiscal restraint. Labour reforms are on track.
The high-tech Flemish region has been booming for years, adapting much better to globalisation than the rust-bowl industries of Wallonia , where unemployment is at 14pc and welfare dependency is rife.
Flanders now has a per capita income at 140pc of Walloon levels. It balks at transferring more tax revenues as a proportion of GDP to Flanders than West Germany has paid to rebuild East Germany, especially for a region that once treated Flemings with lofty disdain. The Flemish were denied higher education in their own language until 1932.
Hundreds of thousands lost their civic and pension rights after the Second World War for alleged German sympathies. The refusal to offer an amnesty, as in other occupied countries, was a thinly veiled means of prolonging French control that has caused ethnic hatreds to fester.
Information appearing on telegraph
Last Updated: 12:45am GMT 16/11/2007
Mounting concern that Belgium could break apart after 157 days without a government has begun to hit the country's sovereign bonds, causing spreads to suddenly widen to the highest levels in five years.
Months of wrangling between Dutch-speaking Flanders and French-speaking Wallonia has reached crisis point after the Flemish majority broke Belgium's sacred rule and enforced its will by majority vote for the first time in 177 years.
Belgian newspapers have begun to talk about the "death" of the country first created by Lord Palmerston in 1830.
advertisement
The spreads over German bonds have jumped from four to 17 as questions grow about the long-term status of Belgium's €278bn (£198bn) public debt.
At 86pc of GDP, it is the third-highest burden in the eurozone after Greece and Italy.
Jean Deboutte, director of risk management at the Belgian Debt Agency, said there was no question of default.
"The spreads have moved and I can understand why people are concerned. Over 50pc of debt is held by foreign investors. The bonds are a liquid, and quoted every second. All I can say is that debt will be repaid whatever happens," he told The Daily Telegraph.
"Splitting up a country is very difficult. The Belgian Treasury has no plan at all. We could think about two systems: one where the debt is guaranteed as a whole by the two regions. Or we could split it between the two regions, but that is not easy because they have different credit ratings.
"Flanders has AAA, while Brussels and Wallonia are lower," he said.
Remy Salters, who covers Belgium for Standard & Poor's, said there was no immediate danger that Belgian will lose its AA+ sovereign rating but warned that this could change if the crisis hits public finances.
"We're following what is going on very closely. If there is any sign of a reversal in fiscal consolidation it would be a cause for concern," he said.
"We don't think a break-up will happen, but it would be hugely complicated if it did. The country has a towering debt that would have to be assigned," he said.
The IMF formula used for the 'velvet' break-up of Czechoslovakia used relative levels of development to divy up the burden, but the debt levels in that case were tiny.
Mr Salters said the Belgian economy has been a star performer, with growth reaching 2.7pc this year.
The debt has been slashed from a peak of 123pc of GDP in the early 1990s by fiscal restraint. Labour reforms are on track.
The high-tech Flemish region has been booming for years, adapting much better to globalisation than the rust-bowl industries of Wallonia , where unemployment is at 14pc and welfare dependency is rife.
Flanders now has a per capita income at 140pc of Walloon levels. It balks at transferring more tax revenues as a proportion of GDP to Flanders than West Germany has paid to rebuild East Germany, especially for a region that once treated Flemings with lofty disdain. The Flemish were denied higher education in their own language until 1932.
Hundreds of thousands lost their civic and pension rights after the Second World War for alleged German sympathies. The refusal to offer an amnesty, as in other occupied countries, was a thinly veiled means of prolonging French control that has caused ethnic hatreds to fester.
Information appearing on telegraph
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