(For more on Europe’s sovereign-debt crisis, see EXT4.)
Jan. 6 (Bloomberg) -- Belgium came under increased pressure from the European Union to ensure that it can cut the 2012 budget deficit to less than the EU limit of 3 percent of gross domestic product.
“We need to have a thorough discussion to see if we come to the same figures in terms of revenues and expenditures,” Olivier Bailly, a spokesman for the EU, told reporters today in Brussels. “We want to have some clarification to make sure they will meet this target and that it will not have to trigger another step in the excessive deficit procedure.”
Belgium is one of five EU member states that are in danger of missing their 2012 deficit targets and could face sanctions for overstepping the EU’s limit. The European Commission projects that Belgium’s deficit will be about 3.25 percent of GDP this year, wider than the government’s 2.8 percent target, De Tijd reported on its website, citing a Jan. 5 letter from EU Economic and Monetary Affairs Commissioner Olli Rehn.
In the letter, Rehn told the Belgian government to at least hold back some additional expenditure pending a decision in February about added budget savings of 1.2 billion euros ($1.5 billion) to 2 billion euros, according to the newspaper. The EU set a deadline of Jan. 9 for Belgium to respond, De Tijd said.
Belgium will review its 2012 budget next month, following parliamentary approval of the spending plan and taking into account the latest growth estimates and last year’s deficit figures, Budget Minister Olivier Chastel told reporters today in Brussels.
“Given that the budget agreement is only one month old and has met with fierce opposition from the labor unions, the appetite to do more is currently low among the ruling parties,” Steven Vanneste, an economist at BNP Paribas Fortis in Brussels, wrote in a research note. “However, the Belgian government has recently shown that it can act fast when confronted by external pressure.”
Belgian Prime Minister Elio Di Rupo’s six-party coalition reached a budget agreement less than 24 hours after Standard & Poor’s Ratings Services on Nov. 25 lowered Belgium’s credit rating one step to AA with a negative outlook.
Belgian bonds fell today, pushing the extra yield investors demand to hold Belgian 10-year bonds rather than German government securities of similar maturity 6 basis points higher to 278 basis points at 4:42 p.m. in Brussels. That’s the most since Nov. 30. The so-called spread reached a record 360 basis points on Nov. 25, just before S&P cut Belgium’s credit standing.
Di Rupo’s government, which was sworn in 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. The 2012 spending plan was drawn up assuming the economy would expand 0.8 percent this year.
Belgium’s central bank last month reduced its forecast for economic growth this year to 0.5 percent, in line with the latest prediction by the Organization for Economic Development and Cooperation, following a 0.1 percent quarterly GDP contraction in the third quarter. Vanneste said he sees Belgian growth stagnating this year.
Acknowledging that growth assumptions might need to be lowered when Belgium reviews its budget next month, Belgian Finance Minister Steven Vanackere said today that he disagreed with the EU’s deficit projections.
“We want to show that with the budget makeup of December, we will be able to cut the deficit to less than 3 percent,” he told reporters in Brussels. “I’m sure that we will have to take important political decisions in February, but that’s not what’s on the agenda right now in January.”
--With assistance from Ewa Krukowska in Brussels. Editors: Jones Hayden, Patrick Henry
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