Bloomberg News

Belgium Threatened With Possible EU Sanctions on Budget Deficit

November 17, 2011

Nov. 17 (Bloomberg) -- The European Commission plans to move ahead against Belgium for failing to take “effective action” to tackle the nation’s budget deficit, which is forecast to grow to 4.6 percent of economic output next year.

“We intend indeed to move forward in the excessive deficit procedure in the case of Belgium,” Amadeu Altafaj, spokesman for European Union Economic and Monetary Affairs Commissioner Olli Rehn, told reporters in Brussels today. Rehn last week warned Belgium and four other EU countries to accelerate deficit-reduction efforts or face sanctions.

Belgium doesn’t have a 2012 budget yet after 17 months of coalition talks have produced only institutional agreements over the distribution of tax revenue and more fiscal autonomy for the country’s regions. Led by Elio Di Rupo, the six parties involved in talks are still hammering out a budget to cut the 2012 deficit to 2.8 percent of gross domestic product amid slowing economic growth. The EU forecast on Nov. 10 that the shortfall would widen to 4.6 percent of GDP next year from an estimated 3.6 percent this year.

Belgian coalition negotiators assume the economy’s expansion will slow to 0.8 percent in 2012, which would translate into a deficit of 5.3 percent of GDP without spending cuts or additional taxes, according to projections by the High Council of Finances published on Oct. 31.

“The challenge here is not only of a strictly speaking budgetary nature, but also of a structural nature,” Altafaj said today.

Recommendations for Belgium set out by the Brussels-based commission earlier this year include speeding up deficit reduction, taking steps to cut government spending, reforming the system of wage bargaining and indexation and introducing measures to boost competiveness in the retail industry as well as in its electricity and gas markets, Altafaj said.

Belgium faces a fine of about 700 million euros ($944 million), or 0.2 percent of GDP, which could rise to as much as 920 million euros should the country fail to comply with the commission’s recommendations, De Tijd reported today.

--Editor: Jones Hayden

To contact the reporter on this story: Andrew Clapham in Brussels at aclapham@bloomberg.net

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


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