Bloomberg News

Belgian Government Talks Clear Key Hurdle; Bonds Rally

September 15, 2011

(Updates with bond prices in fifth paragraph.)

Sept. 15 (Bloomberg) -- Belgian coalition negotiators agreed to split the voting district encompassing the bilingual capital, removing the biggest obstacle to political stability in the country for the past six years and sending its bonds higher.

“Even as there remains much work to be done, clearing the hurdle of Brussels-Halle-Vilvoorde constitutes an important step,” Elio Di Rupo, the president of Belgium’s French-speaking Socialist Party, said today in a statement.

The eight-party talks will resume at 2 p.m. in Brussels and focus on the distribution of tax receipts and transfer of additional powers to the regions, Di Rupo said. The proposed split means that French speakers living in 29 Flemish suburbs will lose the right to vote for French-speaking candidates from the Brussels capital.

The breakthrough is a success for Di Rupo, 60, after the dispute highlighted the rift between Dutch- and French-speaking parties and provoked the collapse of the previous government led by Yves Leterme. The inability to form a government since the June 2010 national election has led Standard & Poor’s and Fitch Ratings to assign a negative outlook to the country’s debt, currently ranked the second-highest investment grade, and inflated Belgian borrowing costs relative to the six higher- rated euro-area nations.

Disputed District

Belgian government bonds rallied following the agreement. The 4.25 percent securities due September 2021 gained 0.63, or 6.3 euros per 1,000-euro face amount, to 102.380 as of 11 a.m. in Brussels for a yield of 3.97 percent. The extra yield investors demand to hold the 10-year bonds rather than German notes of similar maturity fell 9 basis points to 208 basis points.

The disputed district, which encompasses both the bilingual capital and 35 surrounding Flemish municipalities, has been an anomaly since the country switched to provincial voting because it stretches over two separate regions and isn’t aligned to the provincial borders like all other voting districts. Previous attempts to negotiate a split, first by former Prime Minister Guy Verhofstadt in 2005 and later by Leterme, failed.

Di Rupo managed to break a 15-month deadlock in coalition talks after urging the eight parties involved to make a “last effort,” saying the future of the country was at stake. Today’s agreement increases his chances of becoming Belgium’s first prime minister from the southern French-speaking region of Wallonia since Edmond Leburton in 1974.

--Editors: John Brinsley, Ben Richardson

To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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