Belgian Government Takes Office, Credit Rating Cut

Less than two weeks after Elio Di Rupo became prime minister, Moody’s called into question his nation’s creditworthiness.

Elio Di Rupo is sworn in as prime minister of Belgium, December 6, 2011
Elio Di Rupo is sworn in as prime minister of Belgium, December 6, 2011 (PS)

Less than two weeks after Walloon socialist leader Elio Di Rupo unveiled his cabinet and became Belgium’s first French-speaking prime minister in more than thirty years, the Moody’s rating agency called into question the nation’s creditworthiness with a two notch downgrade.

Belgium is one of the most heavily indebted countries in the world with a sovereign debt that’s almost the size of its yearly economic output.

Moody’s said to be more concerned about the lack of solid growth forecasts for Belgium and the threat of Europe’s debt crisis engulfing the nation of eleven million. “The fragility of the sovereign debt markets (in the eurozone) is increasingly entrenched and unlikely to be reversed in the near future,” according to the agency.

The new rating has a negative outlook which means that another downgrade is possible in a couple of years.

Di Rupo’s six party government took office earlier this month after the liberal-conservative caretaker administration had an enacted an austerity budget at the end of November. Belgium had been without a proper government for a year and a half. The political parties were pressed by the threat of a credit downgrade by Standard and Poor’s.

Among the three major American credit raters, only Fitch maintains a rating for Belgium that’s one notch short of AAA, the highest possible rating.

The new coalition government aims to achieve more than €11 billion in deficit reduction next year. The federal shortfall would than amount to less than 3 percent of gross domestic product which should stave off European sanctions if a comprehensive fiscal compact is enacted among eurozone nations.

Cuts are mostly in public health-care spending and developmental assistance while taxes on liquors and tobacco are set to increase.

Major entitlement and labor market reforms will not be attempted. The coalition, which is composed of conservatives and socialists, is not expected to tackle these divisive issues. This will inhibit the Belgian economy’s ability to expand significantly in years to come.