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.