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Contagion Is Back As S&P Threatens To Downgrade AA+-Rated Belgium Within 6 Months If No Government Formed
And so European contagion is back as S&P, now clearly with a mandate to remind that Europe is in a heap of trouble every month or so, puts Belgium on Outlook negative, saying that it is basically just a matter of time before the country loses its AA+ rating. The bogey: 6 months, which likely means that around May of next year, just like a year prior, we will see the same fireworks out of Europe, only this time not from Greece, but from the very heart of what is left of a solvent continent. "If Belgium fails to form a government soon, a downgrade could occur, potentially within six months. Should a government be formed but is, in our opinion, ineffective in its fiscal stance or devolution, we are likely to consider rating action within two years." Sure enough, the EURUSD does nothing on the news.
From S&P
Overview
- A better-than-anticipated 2010 fiscal outcome contributed to our affirmation of Belgium's 'AA+/A-1+' ratings.
- However, we anticipate that prolonged political uncertainty could hurt Belgium's credit standing.
- Accordingly, we have revised our outlook on Belgium to negative.
Rating Action
On Dec. 14, 2010, Standard & Poor's Ratings Services revised its outlook on the Kingdom of Belgium to negative from stable. At the same time, Standard & Poor's affirmed its 'AA+' long-term and 'A-1+' short-term ratings on Belgium. The 'AAA' transfer and convertibility assessment on Belgium is unchanged.
Rationale
We believe that Belgium's prolonged domestic political uncertainty poses risks to its government's credit standing, especially given the difficult market conditions many eurozone governments are facing. We view Belgium's political uncertainty as primarily evidenced by the prolonged delay in forming a federal government after the June 2010 general election as well as the prolonged inability to form a key policy consensus across Belgium's linguistic divide. These key policy areas include, among others, intergovernmental fiscal arrangements, the status of the Brussels-Halle-Vilvoorde bilingual voting district, and devolution in social security, health care, and labor market regulation.
We believe that this prolonged political uncertainty would have been more detrimental to the government's credit standing were it not for Belgium's capable and strong institutions--both at the federal and regional levels. In our view, these positive factors are helping the government fall below its 2010 general government fiscal deficit target of 4.8% of GDP. Better-than-anticipated economic growth of about 2% this year has also helped Belgium's 2010 budget outturn. Exports have fueled this growth, as external demand from Belgium's neighbors and chief trading partners is strengthening, too. Lower-than-budgeted nominal interest rates have contributed to the 2010 fiscal outturn as well.
However, we see risks to the government's 4.1% of GDP fiscal target for 2011 and to Belgium's fiscal stance generally. Notwithstanding an apparent consensus across political parties on the need for continued fiscal consolidation and government net debt reduction from the current high level of 94.6% of GDP, we believe Belgium's current caretaker government may be ill-equipped to respond to shocks to public finances. In our view, the federal government's projected 2011 gross borrowing requirement of around 11% of GDP leaves it exposed to rising real interest rates. On the other hand, we currently do not expect further government support for the nation's banking sector beyond that already extended after the 2008/2009 global recession. We also note that Belgium was in an estimated net external creditor position of around 51% of current account receipts at Dec. 31, 2009.
Outlook
We could lower the sovereign rating on Belgium one notch if we conclude that the lack of consensus will result in the government not being able to stabilize its debt trajectory and to move forward on reforms designed to improve political cohesion. If Belgium fails to form a government soon, a downgrade could occur, potentially within six months. Should a government be formed but is, in our opinion, ineffective in its fiscal stance or devolution, we are likely to consider rating action within two years. On the other hand, if we believe that the government's debt trajectory has stabilized or will improve and if some progress is made on other areas important for strengthening the social contract, ratings could stabilize at current levels.
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Risk off! Belgium is the new Greece. Actually, Belgium is sort of like Pittsburgh. Seen better days when steel was something made by white men.
You confuse Belgium with some areas in the southern part of the country (Wallonia).
Granted, there are some areas with serious problems with unemployment (the region around Charleroi for example), but by no means is that a nationwide phenomenon. The north of the country (Flanders) has a GDP comparable to Denmark or Finland, and people living there have an even higher comparable spending power.
Wallonia is the poorer region. Reforms are needed to regulate financial matters between the regions, while also putting the responsability of improving the employment matters and so on by the Walloon region.
But comparing Belgium as a whole to Greece or Pittsburg only shows that you are not very well informed at all.
Actually, I spent two years in Brussels. A long time ago though. I agree with your comments about the difference between Wallonia and the rest of the country. WSJ had a great story today about Charleroi.
Actually, I spent two years in Brussels. A long time ago though. I agree with your comments about the difference between Wallonia and the rest of the country. WSJ had a great story today about Charleroi.
Actually, I spent two years in Brussels. A long time ago though. I agree with your comments about the difference between Wallonia and the rest of the country. WSJ had a great story today about Charleroi.
Actually I lived in Brussels for two year, a long time ago though. I do agree with your comments about the difference between Wallonia and Flanders. The WSJ had a comicly wonderful story about Charleroi today, on the front page.
Sorry it's a bit of a moot point whether or not the problems are confined to Wallonia. As long as Belgium is the sum of Flanders and Wallonia, the markets will keep comparing that sum to PIIGS when it comes to analysing its treasuries.
True of course, but the point to understand is that it's not all bad, and that fundamental discussions are being held to deal with the problems.
Whoa mate, easy on Pittsburgh! We've totally revitalized. It's home to the Six Time World Champion Pittsburgh Steelers, not some goofy waffles.
I second that opinion. Pittsburgh is a great town to a seller of hot dogs and a seller of Crosby jersies.
Sorry, I didn't mean to dump on Pittsburgh. I like Pittsburgh.
I thought we already fixed this problem a few times.
"EURUSD does nothing on the news"
Maybe they understand the value of S & P.
In Bruges bitchez
6 Months= 4 major Euro crisis away
Nobody listens to s and p.anymore. its guangdong that counts!
before they form a government, they should first split B-H-V, than make Wallonia and Flanders responsible for their in and outs. Otherwise it will be the next step to the independance of Flanders. No way to survive with nearly 50% of Wallonian people voting for the socialists.
otherwise S&P should more concerned about Ben Helicoptero
BHV has little to do with the "real" problems in the country. That is just a political issue, coming down to which party can get votes in which areas. That is symbolism, little more.
Belgium is not the new Greece, the economic framework of these two countries is hardly comparable. In Belgium, there is industry, a firm base of services and small and middle-sized companies.
Concerning the political situation, I consider myself quite well informed. Yes, there is a certain difficulty in forming a government. But part of why it is so difficult is exactly because the political leaders are negotiating how to reform the state and the internal fiscal arrangements within the country. Dutch and French-speaking parts of the country have different views on that, but there is -much more that in past discussions on this topic- an understanding that it is necessary to do a reform.
That is democracy: the people vote and the politicians try to sit together and make a compromise. It takes time, but Belgium has a tradition is having long negotiations to form governments. If you had any idea on how fundamentally some parties wish to reform the state, you would understand that it is not something which can be done in a short time - it simply is too complex and too important for that.
If something ruins the pommes frites ....... what a loss.
we will spoil you with gallons of beer
Seems that this has actually helped to boost the EUR. Nearly at 1.35 now.
Looks like the separatists on both sides have a great plan to kill the federation by piling debt onto it, and it's coming along nicely.
A good sign of pending sovereign trouble is bank "assets" to GDP. The larger the ratio, the closer to the bubble-busted fiat currency drain.