Belgium Struggles to Form New Government

A year and half, Belgium has been without a government. Budgetary and economic reforms necessary to stir growth are stalled.

King Albert asked chief negotiator Elio Di Rupo to continue leading talks to form a government on Wednesday almost a year and a half after Belgians elect a new federal parliament.

With economic growth stalling, Belgium could face European sanctions as early as next month for failing to tackle its deficit which is projected to widen next year from an estimated 3.6 percent in 2011 to 4.6 percent of GDP.

Walloon socialist leader Elio Di Rupo had resigned from leading the negotiations to form a government on Monday after six party talks to hammer out a reform budget that would reduce the deficit to less than 3 percent of gross domestic product fall apart. The northern liberal party argued that Di Rupo’s proposal didn’t cut spending deep enough, relying on tax hikes instead to aim for a balanced budget.

Since last year’s elections, Dutch and French-speaking political parties in Belgium haven’t managed to form a government. Flemish nationalist and Walloon socialists, the largest parties in their respective parts of the country, couldn’t come to an agreement last year and the former have been excluded from coalition talks since January.

Current negotiations include Christian Democrats, Green parties, liberals and socialists from the Dutch-speaking north and the French-speaking south of Belgium. Northerners, who account for almost 60 percent of Belgium’s economy, want more autonomy from the poorer south where Walloons tend to vote overwhelmingly socialist.

Caretaker prime minister Yves Leterme, leader of the Flemish Christian Democrats, announced in September that he would leave his post before the end of the year to become deputy secretary general of the Organization for Economic Cooperation and Development. His government is not empowered to implement necessary economic reforms in the meantime.

With little hope of a ruling coalition coming together soon, Belgian borrowing costs are mounting. There is fear that Europe’s sovereign debt crisis could spread to Belgium which is already among the most heavily indebted countries in the world.

Government spending accounts for almost 50 percent of GDP so Belgium’s ability to borrow cheaply is crucial. The country was 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 broad coalition of left- and right-wing parties seems unlikely to address these long-term impediments.

New elections wouldn’t help to create a more stable majority. Opinion polls suggest that the outcome could be the same as last year’s vote.