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Monday, 11 July 2011

Why is Belgium a failed state…, without really being a failed state?!

Belgium, the small country, positioned between The Netherlands, Germany and France is a failed state…, without really being a failed state.

The country, famous for its delicious beers, food and restaurants and its friendly people is host to most European institutions, with Brussels being the unofficial capital of Europe. It is a stable kingdom with relative prosperity for almost everyone. Nobody will die of starvation or poverty there. And in general there are ample jobs, good houses, beautiful cities, a good infrastructure and plenty of nature to enjoy. But still it is a failed state.

The problem with Belgium is: for already more than a year now, the country is without a real government. The caretaker government of Prime-Minister-under- resignation Yves Leterme does a good job in ‘guarding the shop’ and representing the country at international meetings and consults. But Leterme doesn’t have the governmental power to take the radical decisions that are needed to push the country forwards in the political, financial and economic environment.

At this moment, the country is not in immediate danger of getting a worse rating from the international rating agencies and most capital demands for the coming months are covered. However, in the long run the situation might turn for the worse. And there is no guarantee that the country will have a government very soon or even … this year.

But what is it that makes it so hard to get a new government in Belgium. To understand that, you have to take a brief look at the (recent) history of the country.

Belgium is divided in two halves by the ‘language boundary’: the southern half of the country, Wallonia, speaks French and the northern half, Flanders, speaks Dutch.

Was Wallonia in the 19th century the economic motor of Belgium with steel mills, coal mines and other heavy industry, in the 20th century Flanders became the economic motor in Belgium with its large port in Antwerp and its services industry.

Wallonia, confronted with an increasingly obsolete industry, rising unemployment, deterioration of its cities and in general ‘a beautiful future behind it’, became more and more dependant on Flanders, which was considered a defeat for this part of the country. And therefore the French language of the Wallonic people became increasingly a weapon of resistance against the more succesful Flemish countrymen. Although most Wallonic people could understand and speak Dutch, they simply refuse to speak it. This goes even so far that Wallonic people rather speak Dutch to Dutch people than to Flemish people.

Most Flemish people have less problems with speaking French, as they often speak it fluently, but they complain that ‘all our taxpayer’s money is disappearing in an economic “black hole”, called Wallonia’. The rise of populistic, nationalistic parties in Flanders (Vlaams Belang) helped to increase this process.

The main political development of the last fourty years in Belgium was that more and more tasks of the central government were delegated to the three districts of Belgium: Flanders, Wallonia and the zone around Brussels. These districts – having their own budgets, parliaments and political infrastructure – are increasingly behaving like partners in a bad marriage: not living with eachother, but increasingly next to eachother on a road to further segregation. There is simply too much distrust, too much hurt feelings and too little common interest to look at problems together. And now the political segregation too is almost totally. People living in Wallonia can’t vote for Flemish (Dutch speaking) politicians and vice versa: you can’t vote outside your territory. This adds to the current political stalemate.

And although you repeatingly hear voices that are pleading for a total split-up of the country (model former Yugoslavia, but of course without the bloody wars), there is still too little momentum to execute such an operation. The main reason for this: who gets Brussels?!

Brussels is the economic motor of Belgium, due to being the unofficial capital of the European Union. Although the absolute number of civil servants and politicians representing the EU in Brussels is limited, the amount of jobs and prosperity that the EU creates is enormous. Lobbyists, lawyers and notaries, logistical companies, employment agencies, shops, restaurants and hotels, the airport and all kinds of other companies: all benefit from the money flow in Brussels. This city is truly the Washington of Europe.

And although Brussels is officialy Flemish territory, arguably the main language in Brussels is increasingly: French. And there lies one of the biggest current problems.

Brussels-Halle-Vilvoorde is a zone in this city that is officially Flemish and Dutch-speaking, but is increasingly becoming French-speaking, due to immigration of Wallonic people. In spite of the fact that the majority of the Brussels-Halle-Vilvoorde population became Wallonic, politics is still very much Flemish and it is not willing to give one finger to the French-speaking inhabitants. None of both parties in this conflict is willing to give in.

This leads to politicians from Flanders and Wallonia being ‘at war with eachother’ and to a political stalemate that already lasts for about 3 – 4 years, culminating in Belgium being without an official government for more than one year.

There have been endless attempts from the moderate representatives of both sides (Wallonic and Flemish) to mend the political situation, but the radical parties, who have gained strength during the last 15 years, make this impossible. And if elections were held in Belgium right now, there would be absolutely no shift in the political landscape, compared to the elections of one year ago. The radical parties still would become a major share of the votes and nothing would really change. And that makes this political stalemate almost unsolvable.

To give you an idea of the urgency of the current situation, here is an article from the Belgian, Dutch-spoken newspaper De Morgen (The morning; I’ll show you here the pertinent snips:

During a lunch meeting in New York, a group of representatives of large investment banks fired a great number of questions to Prime Minister Yves Leterme on the political crisis in Belgium. That Leterme’s caretaker government can diminish the current budgetary deficit, is comforting the investors for the moment. But they have worries on the ‘firepower’ of this cabinet to execute reforms in the public finances, in order to maintain financial stability in the long run.

Is there a deadline for this political situation? Are elections being held soon? Leterme met more often important bondholders, lately, but it was the first time that the Prime-Minister got so many questions on the political situation in Belgium. “They were very curious. They clearly wanted to know about the situation and what possibilities for action are left”, according to Leterme after the meeting finished.

“The most important thing for investors is that reforms can be carried through”, according to managing director Sylvia Moussalli of Morgan Stanley in Frankfurt am Main. “The biggest concern is that a political deadlock is created and the government does not have the necessary majority to carry through reforms that keep the state’s budget on track”.

Moussalli calls ‘reforming the pension system and forcing back government-spending the biggest worries’. The manoeuvering space of a caretaker government is of course limited, but according to Moussalli, the Belgian government proved during the last year that it can act when needed. “The economic situation is stable. Even with a caretaker government, important measures were taken.
That was important for us to learn”.

Also Leterme emphasized there is no reason for panic. This week another €3.5 bln is collected in a 15Y, synchronized loan. With this loan, Belgium possesses 76% of funds necessary to roll-over state debt for this year. “I am certain that this whole operation will run correctly. The terms are favorable”, according to Leterme.
Of course, compared to Italy, Greece, Spain and Portugal, there is no immediate need for panic in Belgium. But in a financial market where the mood is so shaky and where the stakes for the Euro are so high, the situation in Belgium is not at all a sign of stability and therefore potentially dangerous. Even the slighest political problem could spark a massive distrust of the Belgian financial stability and could put Belgium in the PIIGS-zone. And that is not a zone where you want to be, nowadays.

What can’t be done in Belgium:
·    Finding a solution for the language-related problems and in particular for Brussels-Halle-Vilvoorde seems impossible at this moment
·    Forcing the radical / populist parties into changing their minds seems also impossible.
·    Creating a government of national unity seems therefore a bridge too far.
·    Also a split-up of the country on short notice won’t happen, due to the problems in Brussels.
·    Elections would not change anything, I’m afraid, as they probably will yield about the same results as one year ago.

What might be done for Belgium:
·    All parties in Belgium should agree-to-disagree on Brussels-Halle-Vilvoorde: without political will this situation can’t be solved, but the time is not right for this political will currently. Agreeing-to-disagree might help to step over this question and to solve the other pending questions that need more immediate attention.
·    The moderate parties in Belgium should keep up talks and maybe even should do an attempt in trying to form a minority cabinet.
·    Instead of looking for a fixed, silent party to support this government (like the PVV of Geert Wilders in The Netherlands), they should rather look for parlemental majorities on specific issues. There are certainly issues that all Belgians agree on: stabilizing the financial situation is certainly one of them.

And further, time is needed to heal the Belgian wounds: more time than the Belgian government has left to solve the immediate problems, unfortunately.

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