And now, the end is near ...

After two week of often violent discussions negotiators for a new Belgian government finally concluded an agreement Saturday at noon on the budget of 2012 and socio-economic reforms in the next years. The expectations are that Belgium could now have a government at last, somewhere next weekend, after more than 500 days.

Shortly before the noon news-shows on television the five party presidents and acting deputy prime minister Laurette Onkelinx (who leads the delegation of the French-speaking socialists while their party president Elio di Rupo is chief negotiator) came out of the building of Onkelinx’ cabinet in de rue du Commerce to announce that they had made an agreement on socio-economic matters.

The last round of negotiations had started on Friday evening at six o’clock and lasted throughout the night for 18 hours. Since Wednesday Elio di Rupo had been asked again by king Albert to fulfill his mission. Di Rupo then held two days of discussions with the liberals, who disagreed most with his proposals. In the meantime Belgium became together with Italy and Spain the main target of the financial markets, seeing the interest rate on 10 year government bonds rising from 4,7 % on Monday morning the 21^st to 5,85 on Friday evening.

The ‘formateur’ and the party presidents of Christian democrats, liberals and socialists will explain their agreement tomorrow afternoon at a press conference in parliament. They agreed to reduce the budget deficit to 2,8 % of gdp in 2012, under the 3 % barrier that the EU is demanding. For this they had to find 11,3 bn € of budget cuts and new incomes (an equivalent of 3 % gdp). Additional efforts of about the same amount were needed for the years 2013 and 2014.

Among the measures agreed are new taxes on company cars, on banks, on value made by enterprises from shares (in a short time after buying) and on  large deposits,  besides cuts in unemployment benefits, sickness insurance and early retiring systems. Unions and the opposition reacted immediately negative on the new measures.

On Monday the negotiators will take up the last nuts to crack: a few details about justice, and a probably tough discussion on migration and asylum policy. Nevertheless most observers expect now a global agreement towards Thursday, after which the party congresses can take place and the new ministers can be designated. The new government di Rupo I could than swear its oath to the king some 540 days after the elections of June the 13^th 2010.

Back to Ciergnon

The 77-year old King Albert of Belgium held consultations with political leaders today to resolve the new crisis in the government negotiations after ‘formateur’ Elio di Rupo handed in his resignation on Monday. The King will probably tomorrow make a decision about accepting the resignation or not, 528 days after the last elections.

Di Rupo went to see the King in Ciergnon, the Ardennes castle where Albert II is recovering from a small nose operation. The leaders of the six parties that try to form a government had also to travel to there today to be consulted, beginning with the French-speaking Christian democrat Benoit Lutgen (who succeeded to Joelle Milquet last summer) who lives in nearby Bastogne.

The last time king Albert consulted political leaders from Ciergnon was in September 2007 when he recovered from a fall. At that time the ‘royal scout’ Herman Van Rompuy came to report on his mission of bringing the negotiators back to the table so as to launch a new mission from the then Flemish chef minister Yves Leterme(see  http://crisisinbelgium.blogspot.com/2007_09_01_archive.html) .

This time it was Elio di Rupo who came, after negotiations on the budget of 2012 had ended in failure. The liberals, and especially the Flemish ones, refused to accept di Rupo’s latest proposals, claiming that these were still largely insufficient to fulfill the recommendations the European Commission and Council made last summer to Belgium.

After consulting his party on Monday morning, di Rupo brought the six parties again around the table in the early afternoon. He was already dressed in costume, to be prepared to see the King. The session lasted less than an hour and ended with di Rupo acrimoniously shouting at Alexander De Croo, the president of the Flemish liberals, that ‘for the second time you are throwing the country into chaos’. De Croo was responsible for the fall of the Leterme-government in april 2010, the beginning of the political crisis that is still going on.

It is widely expected that the King will refuse Di Rupo’s resignation and ask him to try to resume negotiations. An alternative  scenario is that another politician or technocrat might take up the mission for a week or so. Matters are indeed urgent as there should be a budget announced towards the European Commission on the 15^th of December. The former negotiator and Flemish socialist Johan Vande Lanotte claimed on Monday evening that the ultimate deadline is in fact the 15th of January. That is the moment where the EU should decide sanctions if Belgium still has not complied with its budgetary obligations.

Interest rates on Belgian 10 year government bonds crossed the barrier of 5 % today. That may have been caused by the new twist in government negotiations, but more likely by new troubles in two of the country's main banks, Dexia and KBC.

Between Greece and Germany

Five weeks after reaching an historic institutional agreement, Belgian government ‘formateur’ Elio di Rupo is wrestling with the issue of economic reform and budgetary cuts on his way to form a new cabinet, now already 517 days after the last elections. As the pressures mount from both the EU and the financial markets, he is nevertheless asking for more time.

Friday late in the afternoon di Rupo finally laid a list on the table of the negotiators with a budget proposal for 2012 and apparently some elements for further cuts in the years between 2013 and 2015. Due to the worsening economic situation 11,3 billion € (about 3 % of gdp) have to be found in 2012 and at least the same amount for the next three years. Belgium has a global debt level of slightly less than 100 % gdp and should therefore bring its year-on deficit below 3 % next year. Its spread (of 10 year government bonds) with Germany had been steadily rising to 2500 points, with an interest rate of between 4.0 and 4.5 %.

Di Rupo’s latest proposal was delivered to the six remaining parties around the negotiation-table: socialists, Christian democrats and liberals from both communities, commanding together 96 of the 150 seats in the Lower House. The greens, who participated for almost 500 days, were thrown out of the negotiations on October the 13^th, five days after the institutional agreements, because the liberals refused to participate in a government that would be dominated by the left.

Since then some smaller agreements have been reached on justice and interior matters, and on energy and railway policy. But the hard nut to crack remains the budget for 2012 and the social and economic reforms needed to comply with the recommendations the European Commission and Council made last summer. These were issued in application of the European Semester-procedure to strengthen economic cohesion inside the embattled Eurozone.

Like in other Eurozone-states these issues stimulate tensions between the left and the right. But as these tendencies have distinctively different strengths in Flanders (more right) and French-speaking Belgium (more left), they create new tensions between the two main communities of Belgium. The country lies now right in the heart of the tensions between the northern and the southern countries of the Eurozone.

The more rightwing parties, especially the Flemish liberals, feel increasingly emboldened by the warnings coming from Europe to Belgium – last Friday from (the also liberal) commissioner Olli Rehn – and by the fact that defenders of the status quo, be they Berlusconi or the whole political class of Greece, are swept away by the dramatic events of the Eurocrisis.

So it was a surprise that di Rupo’s proposal on Saturday contained no shift compared with his initial  text on social and economic matters of July, which was then seen as an honest opening move with still strong accents from di Rupo’s own French-speaking socialist party. Friday’s proposal was mostly a list of measures to raise new income, and to leave the social security as much as untouched. It did not say anything about the overblown administration where tens of hundreds of officials will retire in the next years. It left the extremely inefficient railway company – still 100 % in government hands – untouched, although this swallows 3 bn € of subsidies each year.

The Flemish liberals and Christian democrats reacted angrily, and leaked the document to the press. There was anew critic on di Rupo’s extremely slow way of working, now that weeks of discussions had produced seemingly nothing new in his proposals.

After a day of fierce and tense discussions it was learned on Sunday morning that the formateur will need more time. He had hoped to finish at least the budget of 2012 before the opening of the financial markets on Monday, and in order to be on time with the schedule for making the budget pass through parliament before the end of December. It is now unclear if the caretaking government of Yves Leterme will still need to propose an emergency budget, after di Rupo and the prime minister had agreed on the 17^th of October that the new coalition would take up the task.