Just how serious is the financial crisis Belgium is facing?

The lack of a federal budget agreement is having an impact on the financial challenge facing the country, says Jean Deboutte, director of the Federal Debt Agency, the government body that manages the federal public debt. “The fact that there is still no agreement has caused damage on the financial markets: interest rates Belgium has to pay are rising”.

“We can see that the yield spreads with Germany rose by around ten basis points at the start of the week. This is entirely due to the failure of the negotiations. Those yield spreads had already widened, because the market had realised that the talks were proving difficult and because most countries had already submitted their budget proposals to the European Commission and we had not.”

The yield spreads that show the difference between the interest rates a country like Belgium has to pay in relation to say Germany have been widening for some time, but what does that mean? “There hasn’t been a real rise in interest rates, but we can see that yields in Germany and the Netherlands have fallen over the past month. Those who have invested in Belgian government debt have made a bad investment. The value of those bonds has fallen sharply compared with the values of bonds from those countries. That will be taken into account when investors next face a decision on whether to invest in Belgian government debt.”

The risk of a backlash from the financial markets is real. Belgian Budget Minister, Vincent Van Peteghem (CD&V), is among those who have even drew a comparison with the Greek euro crisis that started in 2009 and went on for several years. “The rise we have seen in recent months is, after all, quite striking. The question, of course, is when it really becomes too much. That is difficult to predict. Nobody can say, and that applies to France and other countries as well.”