After numerous rounds of negotiations between the victors of this summer’s federal elections, Belgium is still without a government. The two major parties, the Flemish nationalists and the French-speaking socialists, have been gridlocked for months. Unless they manage to find common ground in the weeks ahead, the country may have to call another election.
No one likes the prospect of new elections as they are likely to strengthen each of the largest parties in the two language areas of Belgium, rendering future compromise nigh impossible. The New Flemish Alliance, which favors gradual secession of the Dutch-speaking part of the country, has been adamant so far in demanding increased autonomy for the region. Walloon socialist leader Elio Di Rupo previously offered the Flemish financial reform, including a transfer of competences from federal to regional governments worth some €15 billion. But the nationalist balked at parallel requests to give Brussels — an independent, bilingual region within Flanders of which the population is largely French speaking — a fixed subsidy of €250 million to alleviate part of its massive debt burden.
The compromise agreement currently under consideration entails a further transfer of authority over health-care policy and labor law from the federal government to the regional entities. Public finances are among the most hotly contended issues as the Flemish allege that they have been paying for Wallonia’s prosperity in recent years.
Whereas Flanders is the economic powerhouse of Belgium, the south remains impoverished and subject to high unemployment rates. With the socialists in power, the Walloons nevertheless enjoy a welfare state for which the Flemish say they are footing the bill.
The trend will probably reverse in the year ahead. Economic growth is expected to stall in Flanders while the French-speaking south will see modest expansion.
The lack of political stability may well harm Belgium’s credit rating in the near future. As one of the most highly indebted countries in Europe with government spending equaling almost 50 percent of GDP, Belgium’s ability to borrow is pivotal. The country has been able to recover from the global downturn with modest growth rates last year but stimulus measures and subsidies have taken a heavy toll on public finances. Corporate and income taxes in Belgium are high and labor codes are stringent. A national government composed of regional conservatives on the one hand and socialists on the other is unlikely to address these long-term impediments however.