Belgium

Politics:

• Analysis

  Belgium politics: Separatist party registers strong gains in local election

  The New-Flemish Alliance (N-VA) emerged as the strongest party in Flanders during local (communal) elections held on October 14th. The N-VA's gains in Flanders were largely at the expense of the three mainstream parties belonging to the federal coalition government of the prime minister, Elio Di Rupo. However, in French-speaking Wallonia and Brussels, the coalition partners largely held their ground, and Mr Di Rupo's Socialist party remained the biggest single party in Wallonia.

  Local elections in Belgium are usually dominated by local issues and personalities, and therefore do not always reflect national trends. This time was different, at least in Dutch-speaking Flanders, as the leader of the N-VA, Bart De Wever, called on Flemings to use their vote to express their disapproval towards the constitutional settlement agreed by Mr Di Rupo's coalition to redefine relations between Belgium's linguistic communities.

  Bart De Wever is the great winner of these elections

  His party, virtually unrepresented at the local level in the latest elections, in 2006, became the biggest single party in four of the five Flemish provinces. Mr De Wever also confirmed his personal standing by beating the popular Socialist incumbent to become the next mayor of Antwerp, the biggest city in Flanders. There, the N-VA polled nearly 38% of the vote, against 29% for the Socialist candidate.

  Within hours of the vote, Mr De Wever called on television for Mr Di Rupo to start negotiating with him on the next stage of Flemish home rule, which he called confederalism (the declared goal of Mr De Wever and his party is full independence for Flanders). The reply by Mr Di Rupo was that communal elections were not substitutes for federal ones. Mr Di Rupo's Flemish coalition partners, the Christian Democrats, Socialists and Liberals, joined him in minimising the political impact of the electoral results. However, they will come under intense pressure to harden their pro-Flemish discourse in the run-up to the next federal elections, now less than two years away in June 2014. They may want to face down Mr De Wever, but they fear that this could increase electoral transfers to the N-VA if they do.

  The most pressing task for the government is now to finalise the draft budget for 2013, as work on the budget was suspended during the campaign for the local elections. Under its agreement with the European Commission, the Belgian government is committed to reduce its deficit next year to 2.2% of GDP. To meet this target the coalition will need to come up with additional savings and/or extra revenues worth between EUR4.5bn and EUR5bn.

  Mr De Wever has put the Flemish coalition partners under pressure in the budget negotiations to ensure that what he sees as rich Flanders is not called upon to pay too much through the federal budget to support welfare-dependent Walloons. The outcome of the local vote will also make for tensions within the Flemish regional government where the N-VA is in coalition with Christian Democrats and Socialists.

  N-VA's victory has longer-term implications

  Mr De Wever's victory on October 14th promises turbulence in Belgian politics in the coming months, when part of the coalition's devolution settlement still needs to be voted through by the federal parliament in a process that will run into 2013. But it is the long-term implications of the victory that could be the most significant. The N-VA has further strengthened its political legitimacy and is on track for the 2014 federal elections on a confederalist agenda. The current reform package devolves taxation, social security, health and labour laws to the regions and communities.

  Mr De Wever has not so far defined the confederalist structure he wants to see in Belgium. The main reason for his hesitation may be the memory of previous devolution negotiations, which paralysed the country for 18 months after the 2010 federal elections. Mr De Wever himself was accused by journalists of putting the economy at risk by his attempts to block a compromise deal between Flemish and French-speakers.

  Mr De Wever knows that a return to sound economic health is not on the cards for 2014 or any time soon. The next stage of Flemish disengagement from Belgium via a confederal relationship between the communities would take many months to negotiate. A post-2014 coalition will still be nursing the country out of austerity and economic stagnation and will therefore not be able to take much time out from its essential day-to-day activities. Trying to force the issue in these circumstances could herald economic disaster.

  However, this does not mean that Mr De Wever will bide his time. He knows he has to stay on the attack if he is not to lose his authority and his relevance, and will become an even greater thorn in the government's flesh than hitherto. But despite his agitation, the country will continue to muddle through as a political and economic unit for some time to come.

  October 16, 2012

• Background

  Belgium: Political forces at a glance

  Political outlook: Political forces at a glance

  Present government: The current government, led by the francophone socialist Elio di Rupo, was formed at the end of Belgium's longest political crisis in decades. It is a six-party coalition of the three traditional parties from the Flemish and French-speaking communities-Socialists, Christian Democrats and Liberals. The Flemish separatist New-Flemish Alliance (N-VA) emerged as the largest party in parliament at the June 2010 election, and was therefore in a position of strength to negotiate contentious questions such as the transfer of power from the federal to the regional levels. These negotiations significantly delayed the formation of a government, forcing the outgoing coalition government to remain in power in a caretaker capacity.

  Election results
  (% of vote)
  	May	Jun
  	2003a	2007a	2009b	2010a
  Centrists
  Christian Democratic & Flemish Party (CD&V)	13.3c	18.5c	14.4	10.9
  Humanist Democratic Centre (CdH)	5.5	6.1	5.0	5.5
  Liberals
  Flemish Liberal Democrats (Open VLD)	15.4	11.8	12.8	8.6
  Reformist Movement (MR)	11.4	12.5	9.7	9.3
  Socialists
  Flemish Socialist Party (SP.A)	14.9	10.3	8.2	9.2
  Socialist Party (PS)	13.0	10.9	10.9	13.7
  Greens
  Green Party (Groen!)	2.5	4.0	4.9	4.4
  Ecologist Party (Ecolo)	3.0	5.1	8.6	4.8
  Nationalists & others
  Vlaams Belang	11.7	12.0	9.9	7.8
  National Front (FN)	2.0	2.0	1.3	–
  Lijst Dedecker	–	4.0	4.5	2.3
  New-Flemish Alliance (N-VA)	–	–	6.1	17.4
  Others	7.5	2.8	3.7	6.1
  Total	100.0	100.0	100.0	100.0
  a General election. b European Parliament election. c In partnership with the New-Flemish Alliance.
  Source: Belgian Federal Government.

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  Next elections: The next federal election must be held by 2014. Communal and provincial elections are due in October 2012.

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  August 14, 2012

• Structure

  Belgium: Political structure

  Official name

  Kingdom of Belgium

  Form of state

  Constitutional monarchy

  Federal legislature

  Chamber of Representatives of 150 members directly elected by a system of proportional representation; Senate of 71 members, with 40 members directly elected and 31 indirectly elected or co-opted, including the children of the king aged over 18

  Electoral system

  Universal direct suffrage over the age of 18

  Parliamentary elections

  Last election for the federal parliament was held on June 13th 2010; the next federal election is due in 2014, but could take place earlier. The next regional elections will be held in June 2014.

  Head of state

  King Albert II acceded to the throne in August 1993

  State legislatures

  Councils with governments for the regions of Flanders, Wallonia and Brussels-Capital, as well as for the linguistic communities; the region of Flanders and the Flemish linguistic community governments have in effect been merged

  National government

  Council of Ministers headed by prime minister, who is appointed by the king on the basis of ability to gain support in the Chamber of Representatives.

  Main political parties

  Flemish Liberal Democrats (Open VLD, Flemish); francophone Reformist Movement (MR, an alliance between the liberal PRL and three smaller parties); Socialist Party (SP.A, Flemish); Socialist Party (PS, francophone); Christian, Democratic and Flemish Party (CD&V); francophone Christian Social Party, changed in May 2002 to Humanist Democratic Centre (CdH); Vlaams Belang (far-right Flemish); National Front (FN, far-right francophone); New-Flemish Alliance (N-VA, nationalist, Flemish); Green Party (Agalev changed to Groen! in 2003, Flemish); Ecologist Party (Ecolo, francophone)

  Prime minister: Elio Di Rupo (PS)

  Deputy prime minister, finance & sustainable development: Steven Vanackere (CD&V)

  Deputy prime minister, foreign affairs & trade: Didier Reynders (MR)

  Deputy prime minister, economy & consumers: Johan Vande Lanotte (SP.A)

  Deputy prime minister, pensions: Vincent Van Quickenborne (Open VLD)

  Deputy prime minister, interior: Joëlle Milquet (CDH)

  Deputy prime minister, social affairs & health: Laurette Onkenlinx (PS)

  Council of ministers

  Agriculture, small & medium-sized enterprises & the self-employed: Sabine Laruelle (MR)

  Budget & administrative simplification: Olivier Chastel (MR)

  Defence: Pieter De Crem (CD&V)

  Justice: Annemie Turtelboom (Open VLD)

  Public enterprises, scientific policies & development co-operation: Paul Magnette (PS)

  Work: Monica De Coninck (SP.A)

  Central bank governor

  Guy Quaden

  December 01, 2012

• Outlook

  Belgium: Key developments

  Outlook for 2013-17

  • The Economist Intelligence Unit's central forecast is that Belgium will remain unified throughout the forecast period. Agreeing a split between the Flemish and francophones would be as hard as agreeing to stay together.
  • The coalition government is expected to remain in power until the end of its term in 2014, but tension between the two linguistic communities will persist and have an impact on political stability during and after the election.
  • Policy will focus on reducing the fiscal deficit and improving competitiveness. The distribution of austerity between the regions and the federal government will remain a bone of contention between the linguistic communities.
  • The euro zone crisis will continue to weigh on investor and business sentiment, hampering efforts to improve competitiveness and productivity. The Economist Intelligence Unit believes that the risk of a euro zone break-up persists.
  • The general government deficit stood at 3.9% of GDP in 2011, owing to the economic downturn in the second half of the year. We estimate that it declined to 3.4% in 2012, and forecast moderate reductions to 1.6% by 2017.
  • Real GDP growth slowed to 1.8% in 2011, and we expect a contraction of 0.2% in 2012. The economy is forecast to remain flat in 2013, but GDP growth should recover and average about 1.7% over 2014-17.
  • Inflation, as measured by the EU harmonised index, is estimated at 2.7% in 2012 and is expected to average of 2.3% during 2013-17, which is still above the euro area average.

  Review

  • According to surveys by the National Bank of Belgium (NBB, the central bank), business sentiment fell to its lowest level in three years during October, with all sectors surveyed showing negative sentiment.
  • Data from the NBB indicate that the trade surplus rose to EUR600m in July, EUR300m more than a year earlier. Exports grew by 1.8% year on year, against only 0.2% growth for imports.
  • According to a flash estimate, real GDP stagnated on a quarter-on-quarter basis during July-September, but fell by an estimated 0.3% year on year.
  • Consumer confidence fell to its lowest level since February and well below the average level for the first nine months of the year, with the economic situation and the labour market being the main sources of concern.
  • Discussions about the ambitious 2013 budget plans have made only limited progress over the past month, as the coalition partners disagree on expenditure cuts.

  December 01, 2012

Economy:

• Background

  Belgium: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	10.6	Population growth	0.1
  GDP (US$ bn; market exchange rate)	514.8b	Real GDP growth	1.0
  GDP (US$ bn; purchasing power parity)	426.7	Real domestic demand growth	1.0
  GDP per head (US$; market exchange rate)	48,400	Inflation	2.4
  GDP per head (US$; purchasing power parity)	40,112	Current-account balance (% of GDP)	-0.2
  Exchange rate (av) €:US$	0.7b	FDI inflows (% of GDP)	21.3
  a Economist Intelligence Unit estimates. b Actual.

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  Background: Belgium has been an independent kingdom since 1830. It was a founding member of NATO in 1949 and of the present EU. Belgium hosts the headquarters of NATO and the European Commission and Council, and the European Parliament has its second seat there. Belgium is made up of two major language groups: the Flemish, who speak Dutch; and the francophones, who are dominant in Wallonia and Brussels; there is also a small German-speaking minority.

  Political structure: Belgium is a constitutional monarchy and a federal state, which is divided into three regions, Flanders, Wallonia and Brussels-Capital; and for education and culture into three "communities" of the Dutch, French and German language groups. The regions and communities have their own parliaments and executives, and power is being increasingly devolved to them. Provincial and municipal elections are held every six years, most recently in October 2006. Regional elections are held every five years, the next ones being due in June 2014. At the federal level, the Senate (the upper house) and the Chamber of Representatives (the lower house) have four-year parliamentary terms. Elections to the Chamber (150 members) are by proportional representation. The last federal election was held in June 2010, but a new government was only constituted in December 2011 under Elio Di Rupo, leader of the francophone Socialists.

  Policy issues: A primary long-term policy issue has been the call by Flemish parties for the devolution of power to the regions and the resistance of francophone parties to this. A Flemish party calling for full independence has made recent electoral gains. With government debt likely to rise above 100% of GDP in 2012, reducing the deficit is a high priority. The government is also expected to prioritise labour market reforms, including encouraging workers over 65 to remain in the job market beyond their retirement age, and measures to moderate Belgium's high labour costs.

  Taxation: The corporation tax rate is 34% (25% for small companies). The standard rate of value-added tax (VAT) is 21%. The top rate of income tax was reduced to 50% in 2005, but it remains among the highest in the EU.

  Foreign trade: Belgium increased its trade deficit (fob-fob) from US$4.7bn in 2010 to US$10bn in 2011, while its current-account balance plunged from a surplus of US$6.1bn in 2010 to a deficit of US$3.7bn in 2011.

  Major exports 2011	% of total	Major imports 2011	% of total
  Chemicals and related products, n.e.s.	28.7	Chemicals and related products, n.e.s.	22.0
  Machinery and transport equipment	20.1	Machinery and transport equipment	21.9
  Mineral fuels, lubricants, and related materials	10.6	Mineral fuels, lubricants, and related materials	16.0
  Food, drinks and tobacco	8.1	Food, drinks and tobacco	7.2
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	18.1	Netherlands	19.6
  France	16.4	Germany	14.6
  Netherlands	12.1	France	10.5
  UK	6.9	UK	5.9

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  December 01, 2012

• Structure

  Belgium: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  Belgium: Country outlook

  Belgium: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: It is not clear whether Belgium can re-establish a sufficient degree of common purpose between its main constituent groups, the Flemish and francophones (Walloons and bruxellois), to hold together over the longer term. Belgium remains among the least stable EU member states, given the importance of its separatist parties. However, the Economist Intelligence Unit's central forecast is that the country will still exist in a fragile form at the end of the forecast period, as agreeing the terms of a break-up would not be any easier than agreeing how to stay together. After the first properly constituted government for 19 months was formed in December 2011, the recent agreement on constitutional reform to split the electoral district of Brussels-Halle-Vilvoorde (BHV) improves the short-term outlook for political stability.

  ELECTION WATCH: The last general election was in June 2010, one year before the constitutional requirement, and the next one is not due until June 2014. As a coalition government has now been formed, we do not expect a new general election to be called soon. However, we believe that instability will continue, which could in the most dramatic case lead to an early election. Communal and provincial elections held in October 2012 saw the New-Flemish Alliance (N-VA) reinforce its position as the strongest party in Flanders. Important regional elections are also set to be held in 2014.

  INTERNATIONAL RELATIONS: Preoccupation with domestic problems has reduced Belgium's influence abroad. The government is expected to maintain a pro-EU stance. It will continue to try to influence the current European negotiations on financial and economic issues, but its success will depend on the country's economic and fiscal performance.

  POLICY TRENDS: The economic policy priority of the government will be to reduce the budget deficit and public debt in line with its commitments towards its European partners with regard to the 2013 budget deficit. The leader of the separatist N-VA, Bert De Wever, is exerting strong pressure for devolution of fiscal power and responsibility to the regions. Regional governments already command a high proportion of policy instruments and this will increase over the forecast period. Policy will therefore be increasingly influenced by regional politics.

  ECONOMIC GROWTH: Domestic demand has been restrained as the government has tried to rein in the fiscal deficit by implementing some austerity measures. The main driver of growth, private consumption, is expected to shrink by 0.7% in 2012. This level of contraction is particularly severe by Belgian standards. A prolonged decline in private consumption could lead the country to fall into a much more severe recession. Gradual growth in both employment and real wages should enable private consumption to grow by about 0.9% a year during 2014-17. Gross fixed investment rose by 4.1% in 2011, but we expect it to decline by 0.5% in 2012 because of falling investor confidence. Investment growth should then recover to 2.4% by 2017, as business confidence improves and profits rise sufficiently to fund higher spending. After detracting from real GDP growth during 2011-12, we expect the external sector to make a positive contribution to growth on average over the forecast period.

  INFLATION: Inflation has eased in 2012 compared with 2011, mainly as a result of lower administrated energy prices. The government decided to freeze the price of electricity and gas for nine months from April 2012 and to allow new measures such as a ceiling on price rises and greater price transparency to be put in place. We estimate that the EU harmonised rate of inflation will slow to 2.7% in 2012, and average 2.4% over 2013-17, marginally above the euro area average. Inflation had stood at 3.5% in 2011 (above the euro zone average of 2.7%), given an extra spur by Belgium's system of wage indexation. After the automatic wage indexation system was triggered during May 2011, unemployment and other social security benefits as well as public- and private-sector salaries automatically rose in the following months. Another round of wage indexation is expected to take place in late 2012. Higher wages will continue to provide an upward spur to inflation.

  EXCHANGE RATES: Although not our central forecast, there is a high risk that several countries will be forced to leave the euro in 2012-13. Such fears have caused flight from euro assets, and partly explain the volatility of the single currency, which has fluctuated in a range between US$1.20:EUR1 and US$1.35:EUR1 during 2012, standing at US$1.27:EUR1 in early November. Even assuming that it survives in its present form, the euro will remain volatile in response to shifting risk appetites, protracted economic weakness and lower reserve accumulation by China. We expect it to average US$1.26:EUR1 in 2013 and US$1.25:EUR1 in 2014-17, but there is a significant risk of sharp movements either way.

  EXTERNAL SECTOR: We forecast that the current account will post a small deficit in 2012, which is then expected to turn into a zero balance by 2017. Productivity gains will allow Belgium's service surplus to grow throughout the forecast period. We expect the merchandise trade deficit to remain large in 2012 as external demand growth slackens owing to fiscal consolidation in Belgium's main trading partners. The deficit should then narrow slightly on average throughout the forecast period as foreign demand recovers slowly.

  December 01, 2012

• Forecast

  Belgium: Country forecast summary

  Country forecast overview: Highlights

  • The Economist Intelligence Unit expects the six-party coalition government led by Elio Di Rupo (PS), which was sworn in on December 6th 2011, more than 19 months after the election, to remain in power until the next election in 2014. The political future of Belgium over the next five years is, however, uncertain, especially beyond the next general election. At the last election, which was held on June 13th 2010, the separatist, opposition New-Flemish Alliance (N-VA) emerged as comfortably the largest party in Flanders, just ahead of the francophone Socialist Party (PS).
  • Tensions between the coalition partners will linger, suggesting that government stability will remain in doubt. The opposition N-VA will try to undermine the government's effectiveness and legitimacy and will exacerbate tension between the two linguistic communities. The quality of governance and progress in reducing the fiscal deficit will therefore be limited, and instability is likely to return with the approach of the next federal and regional elections.
  • Despite severe expenditure cuts and tax increases, the government's target to reduce the deficit to 2.8% of GDP in 2012 is unlikely to be met. Public revenue will disappoint, mainly because economic performance is forecast to be weaker than the government expects. Some additional expenditure cuts will help reduce the deficit in 2013, to below 3% but still above the government target of 2.2% of GDP.
  • Belgium's debt/GDP ratio is among the highest in the euro zone, and is expected to exceed the threshold of 100% in 2012 and 2013, before gradually falling over the forecast period. Such high levels of debt and Belgium's weak political capacity will continue to be sources of concern for investors, at least in the short term.
  • Further progress over the forecast period will be slow as the euro zone crisis will weigh on GDP growth. In the medium term there is a risk of a loss of investor confidence over whether Belgium will be able to service its government debt. As an open economy, Belgium will suffer from reduced demand in the euro area over the short term, but it is expected to grow faster than the euro zone during the second half of the forecast period.
  • Consumer prices rose by 3.5% in 2011, up from 2.3% in 2010. The automatic wage indexation system will cause social benefits, wages and rents to increase in 2012 as well. The system of wage indexation will contribute to keeping inflation at about 2.4% over the forecast period, which is slightly above the average for the euro area.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	-0.2	0.0	1.2	1.6	2.0	2.0
  Consumer price inflation (av; %)	2.7	2.3	2.4	2.3	2.4	2.4
  Budget balance (% of GDP)	-3.4	-2.8	-2.2	-2.2	-2.0	-1.6
  Current-account balance (% of GDP)	-1.3	-1.1	-1.1	-1.0	-0.7	-0.3
  3-month money market rate (av; %)	0.6	0.2	0.6	1.1	1.8	1.8
  Exchange rate US$:€ (av)	1.28	1.26	1.25	1.24	1.26	1.26

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  December 01, 2012

View detailed map

Country Briefing

Total area

30,528 sq km: 28% arable, 29% other agriculture, 20% forest, 23% built-up (2005)

Wallonia 16,844 sq km

Flanders 13,522 sq km

Brussels (capital) 162 sq km

Population

10,839,905 (January 1st 2010)

Main urban areas

Population (January 1st 2010)

Brussels (capital): 1,089,538

Antwerp: 985,332

Liège: 604,062

Gent: 527,248

Leuven: 483,469

Charleroi: 425,110

Climate

Temperate

Weather in Brussels (altitude 100 metres)

Hottest month: July, 20°C (average daily temperature over four recent years); coldest month: January, 5°C (average daily temperature); driest month: March, 65 mm average rainfall; wettest month: December, 119 mm average rainfall

Currency

Euro (€) = 100 cents

Languages

Dutch (Flemish), French and German

Measures

Metric system

Time

One hour ahead of GMT (two hours ahead in summer)

Public holidays

January 1st, Easter Monday, May 1st, Ascension Day, Whit Monday, July 21st (Independence Day), August 15th, November 1st, November 11th (Armistice Day), December 25th; in Flanders: July 11th; in Wallonia: September 27th

March 12, 2012