Euro Zone: Belgium has reached a deal to cut its deficit, a day after S&P downgraded its credit rating.
Belgium agrees budget deal after ratings shock
Belgium has become the latest euro-zone flashpoint as its politicians were forced yesterday to agree to a debt reduction plan after the country's credit rating was downgraded.
Standard & Poor's cut Belgium's long-term sovereign-credit rating to "AA" from "AA plus" on Friday, rattling Belgium's procrastinating politicians into action ahead of markets opening tomorrow.
Politicians have failed to form a government in the 19 months since elections and the country's debt levels have looked increasingly precarious.
After all-night negotiations, the six parties involved agreed a deal yesterday to reduce the country's deficit to 2.8 per cent of GDP in 2012 and to break even in 2015. "This budget meets the multi-year commitments of Belgium towards the European Union," party representatives said in a joint statement.
S&P cited political uncertainty, a slowing economy and the bailout of Franco-Belgian bank Dexia as contributing factors to its downgrade of Belgian debt.
"We think the Belgian government's capacity to prevent an increase in general government debt, which we consider to be already at high levels, is being constrained by rapid private sector deleveraging both in Belgium and among many of Belgium's key trading partners," said S&P.
Yves Leterme, the interim prime minister, had called for clarity on the country's budget and the formation of a government before tomorrow morning, inviting the six parties to negotiations through the night on Friday.
Belgium has been without a government since elections in June last year, with progress to form a cabinet hampered by differing opinions on how to fund €11.3 billion (Dh54.92bn) in savings needed next year.
It was the third European country within days to be downgraded after the credit rating of both Portugal and Hungary were cut to "junk" status, or below investment grade, by Fitch Ratings and Moody's Investors Service, respectively.
Belgium's budget deficit will fall to about 3.6 per cent of GDP this year from 4.1 per cent last year, S&P said.
It added 80 per cent the country's GDP was exports, which left it extremely susceptible to downturns in Europe.
As Belgium's debt was downgraded, Pierre Mariani, the chief executive of Dexia, accused speculators of buying government bonds and then trying to force a sovereign default.
"We are pretty much in that situation, where there are bad people who buy these insurances, and behind they go and finance pirates who will allow them to make a lot of money on it," Reuters reported Mr Mariani as saying.