Belgium

Politics:

• Analysis

  Belgium politics: Quick View - New finance minister appointed following res

  Event

  Following the unexpected resignation of Steven Vanackere, until then deputy prime minister, minister of finance and a senior member of the Christian, Democratic and Flemish Party (CD&V), a new finance minister has been appointed. Koen Geens, a law professor at the Leuven University and former adviser to the current head of the Flemish government, will be sworn in on March 6th, according to a statement by the Royal Palace.

  Analysis

  Mr Vanackere resigned after becoming embroiled in a case involving potentially illicit financial flows between the ACW, the Christian Workers Movement, an organisation with close links to the CD&V, and the nationalised bank Belfius (formerly part of Dexia). The ACW is accused of fiscal fraud and of having received large sums of money from Belfius, as payment for illicit lobbying. As finance minister, Mr Vanackere had been in charge of the Belfius bank nationalisation.

  The replacement of Mr Vanackere by Mr Geens is unlikely to have much effect on government policy. We continue to expect the government to focus mainly on reducing its deficit in the coming years and on implementing structural reforms, notably in the labour market. The impact on political stability is also expected to be marginal. The most interesting feature of this case may, however, be what it reveals about the mood in Flemish centre-right and right-wing parties.

  No legal judgment has been made yet, and the impact of Mr Vanackere's resignation on the CD&V is so far uncertain. Although Mr Vanackere's popularity, already quite low before the case was made public, is now in the doldrums, the credibility of the party and that of its prominent figures remains relatively unchanged. Its main Flemish adversary, the separatist New Flemish Alliance (N-VA), has in the past few weeks done its utmost to highlight the case in the media. By attacking the ACW and Mr Vanackere in the media, the N-VA's aim is to weaken the government coalition (of which it is not part, despite being the biggest party in parliament) and most importantly the CD&V. Indeed, the CD&V and its leader, the current minister-president of Flanders, Kris Peeters, have recently made moves to appear a credible alternative to the hardline N-VA. With reform of the federal system under way and supported by the CD&V, the N-VA fears that it will be sidelined at the next general election in 2014 and during the ensuing coalition negotiations. Its goal is to maximise its electoral clout in order to make progress towards its ultimate objective, the establishment of an independent Flanders.

  However, there is a possibility that under such stress, the CD&V proves more resilient than expected. Most importantly, if the accusations are found to be baseless, the N-VA's aggressive attitude may well backfire, thereby reinforcing the CD&V's legitimacy. The final impact on the 2014 election is therefore still unclear.

  March 06, 2013

• 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 June 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 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: Koen Geens (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

  March 20, 2013

• 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. We believe that the risk of a euro zone break-up persists.
  • Thanks to additional austerity measures, the deficit is expected to fall from 2.8% of GDP in 2012 to 2.5% in 2013. Public debt has risen to high levels since 2007, and is unlikely to shrink significantly in the coming years.
  • Real GDP decreased by 0.2% in 2012, owing to weak domestic demand. The economy is forecast to continue to contract mildly in 2013, but GDP growth should recover and average about 1.7% per year in 2014-17.
  • Inflation, as measured by the EU harmonised index, was 2.6% in 2012 and is expected to decelerate sharply to 1.5% in 2013, before averaging 2.3% per year during 2014-17, which is still above the euro area average.

  Review

  • Steven Vanackere, a senior member of the Christian, Democratic and Flemish Party (CD&V), unexpectedly resigned as deputy prime minister and minister of finance, after becoming embroiled in a legal financial case.
  • He was promptly replaced by Koen Geens, a law professor and former adviser to the head of the Flemish government, but the event marks a rise in tension between the CD&V and the separatist New-Flemish Alliance (N-VA).
  • Real GDP declined by 0.1% on a quarter-on-quarter basis in the fourth quarter of 2012, so that the economy contracted by 0.2% in 2012 as a whole, mainly as a result of weak domestic demand.
  • Business sentiment grew slightly in February, owing to a strong improvement in the business-related services sector, although it remains at a low level, and companies are reluctant to invest in the face of overcapacity.

  March 20, 2013

Economy:

• Background

  Belgium: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	10.6	Population growth	0.1
  GDP (US$ bn; market exchange rate)	484.6	Real GDP growth	0.4
  GDP (US$ bn; purchasing power parity)	434.2b	Real domestic demand growth	0.4
  GDP per head (US$; market exchange rate)	45,510	Inflation	2.5
  GDP per head (US$; purchasing power parity)	40,782b	Current-account balance (% of GDP)	-0.7
  Exchange rate (av) €:US$	0.8	FDI inflows (% of GDP)	20.8
  a Actual. b Economist Intelligence Unit estimates.

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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. Regional elections take place 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 constituted only 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 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 2013, 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 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.	28.4	Machinery and transport equipment	22.3
  Machinery and transport equipment	20.3	Chemicals and related products, n.e.s.	22.1
  Mineral fuels, lubricants, and related materials	10.6	Mineral fuels, lubricants, and related materials	16.0
  Food, drinks and tobacco	8.2	Food, drinks and tobacco	7.2
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	18.2	Netherlands	19.6
  France	16.4	Germany	14.6
  Netherlands	12.2	France	10.5
  UK	7.0	UK	5.9

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  March 20, 2013

• Structure

  Belgium: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 20, 2013

• 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 is not due until June 2014. As a coalition government has 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. The N-VA recently heightened its criticism of the Flemish Christian, Democratic and Flemish Party (CD&V), which is part of the government and wants to appear as an alternative to the N-VA. Important regional and European elections are 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 government's economic policy priority will be to reduce the budget deficit and public debt in line with its commitments towards its European partners. The leader of the separatist N-VA, Bart De Wever, is exerting strong pressure for devolution of fiscal powers 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 austerity measures. The main driver of growth, private consumption, shrank by 0.6% in 2012 and is expected to decrease by another 0.2% in 2013. This level of contraction, for two years in a row, is particularly severe by Belgian standards. A more severe and prolonged decline in private consumption could lead to a much deeper recession, although this is not our central forecast. Moderate growth in both employment and real wages should enable private consumption to grow by about 1% per year in 2014-17. Gross fixed investment declined by 0.5% in 2012 because of waning investor confidence, and it is expected to contract even more in 2013. Investment growth should recover to 2.4% by 2017, as business confidence improves and profits rise sufficiently to fund higher spending. We expect the external sector to make a positive contribution to growth in the forecast period.

  INFLATION: Inflation eased in 2012, mainly as a result of lower energy prices after the government decided to freeze electricity and gas prices for nine months from April 2012 and to allow new measures such as a ceiling on price rises and greater transparency to be put in place. The EU harmonised rate of inflation slowed to 2.6% in 2012; we expect it to fall to 1.5% in 2013 as a result of weak demand, and to average 2.3% during 2014-17, slightly above the euro area average. The reform of Belgium's system of wage indexation will help keep inflation at reasonable levels, although high wages will continue to provide an upward impetus to inflation.

  EXCHANGE RATES: Although not our central forecast, there is a substantial risk that several countries will be forced to leave the euro over the medium term. Such fears partly explain the volatility of the single currency during 2012, when the euro fluctuated in a range between US$1.20:EUR1 and US$1.35:EUR1. Since September 2012 the promise of determined ECB action to safeguard the currency zone has helped to stabilise financial markets to a degree, and improved investor sentiment has underpinned a strengthening of the euro against the dollar. However, the euro will remain volatile in response to shifting risk appetite, protracted economic weakness and lower reserves accumulation by China. We expect it to average US$1.33:EUR1 in 2013 and US$1.28:EUR1 in 2014-17, but there is a significant risk of sharp movements either way.

  EXTERNAL SECTOR: We expect the current-account deficit, which stood at an estimated 1.1% of GDP in 2012, to narrow to 0.8% of GDP by 2017. Productivity gains will allow Belgium's services surplus to grow throughout the forecast period. We estimate that the merchandise trade deficit remained large in 2012 as external demand growth slackened owing to fiscal consolidation in Belgium's main trading partners. The deficit is expected to narrow slightly overall during the forecast period as external demand slowly recovers.

  March 25, 2013

• Forecast

  Belgium: Country forecast summary

  Country forecast overview: Highlights

  • The Economist Intelligence Unit expects the six-party coalition government led by Elio Di Rupo of the francophone Socialist Party (PS), which was sworn in on December 6th 2011, almost 18 months after the general election, to remain in power until its term ends in June 2014. The political future of Belgium over the next five years is, however, uncertain, especially beyond the next general election. At the 2010 election, the separatist opposition New-Flemish Alliance (N-VA) emerged as comfortably the largest party in Flanders, and just ahead of the PS nationally. It will be one of the key players of the 2014 election.
  • Tensions between the coalition partners will linger, which suggests that government stability will remain in doubt. The 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 in 2014.
  • By implementing expenditure cuts and tax increases, the government managed to bring down the deficit to 2.8% of GDP in 2012, although this was still above its initial target. Public revenue disappointed and will continue to do so in 2013, mainly because economic performance is forecast to be weaker than the government expects. Additional expenditure cuts will help to reduce the deficit in 2013, to about 2.5% of GDP, although this is above the government's target of 2.2% of GDP.
  • Belgium's debt/GDP ratio is among the highest in the euro zone and is expected to remain close to the threshold of 100% over the forecast period. Such high levels of debt and Belgium's weak political stability will remain sources of concern for investors, at least in the short term.
  • The reduction of the debt/GDP ratio 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 zone in the short term, but it is expected to grow faster than the euro zone during the second half of the forecast period.
  • Consumer price inflation stood at 2.6% in 2012, and is expected to fall sharply in 2013 as a result of weak demand and to remain relatively subdued in 2014. The reform of Belgium's system of wage indexation will help keep inflation at reasonable levels, although high wages will continue to provide an upward impetus to inflation.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	-0.2	-0.3	1.3	1.6	1.9	1.8
  Consumer price inflation (av; %)	2.6	1.5	2.0	2.3	2.4	2.4
  Budget balance (% of GDP)	-2.8	-2.5	-2.3	-2.1	-2.0	-2.0
  Current-account balance (% of GDP)	-1.1	-1.2	-1.0	-0.8	-0.9	-0.8
  3-month money market rate (av; %)	0.6	0.3	0.6	1.1	1.8	1.8
  Exchange rate US$:€ (av)	1.29	1.33	1.31	1.27	1.26	1.26

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  March 20, 2013

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

January 04, 2013