Bloomberg News

Belgium’s Rating Reduced to Aa3 by Moody’s as Contagion Concern

December 16, 2011

Dec. 16 (Bloomberg) -- Belgium’s credit rating was cut two levels to Aa3 by Moody’s Investors Service, which said rising borrowing costs, slowing growth and liabilities arising from Dexia SA’s breakup threaten to inflate the euro area’s fifth- highest debt load.

Moody’s lowered Belgium’s debt rating to the fourth-highest investment grade, from Aa1, with a negative outlook, the ratings company said today in a statement. The action follows Standard & Poor’s one-step downgrade of Belgium to AA on Nov. 25. Fitch Ratings put Belgium’s AA+ rating on review for a downgrade today.

“An immediate and major challenge facing the new government is the impact of weaker growth on the country’s fiscal consolidation efforts and the resulting need for additional measures to meet the medium-term deficit and debt reduction targets,” Moody’s said in the statement today.

Fewer euro-area nations ranked below AAA are expected to retain high ratings as they face a “profound loss” of confidence in their debt that will probably persist, Moody’s said on Oct. 5. Three weeks later, it extended that warning to all European sovereign ratings, including the top-rated countries, as the region’s debt crisis continued to escalate.

Belgian borrowing costs touched the highest level in 11 years in November, with the yield on the benchmark 10-year bond closing at 5.86 percent before S&P’s downgrade on Nov. 25. They started surging almost two months earlier as the caretaker government bought Dexia SA’s Belgian banking unit for 4 billion euros ($5.2 billion) and agreed to guarantee as much as 54.5 billion euros of the crisis-hit lender’s liabilities for as long as 10 years.

Growth Declines

Belgium’s economy, the sixth-largest in the euro region, contracted for the first time in more than two years in the third quarter, heaping pressure on Prime Minister Elio Di Rupo as he tries to cut the deficit in a bid to stave off contagion from the European debt turmoil.

Gross domestic product declined 0.1 percent from the prior three-month period as exports shrank for a second consecutive quarter and consumer spending fell 0.2 percent, the National Bank said on Dec. 7.

Di Rupo’s government, which was sworn in by the king on Dec. 6, has pledged 11.3 billion euros in spending cuts and tax increases to pare the budget deficit to 2.8 percent of GDP next year, as demanded by the European Union. The 2012 budget was drawn up assuming the economy would expand 0.8 percent.

--Editors: Jones Hayden, Dave Liedtka

To contact the reporter on this story: John Martens in Brussels at

To contact the editor responsible for this story: Angela Cullen at

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