© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
November 25, 2011 8:49 pm
Belgium became the latest country to see its debt downgraded as a result of the eurozone crisis, in a further sign that debt market turmoil is no longer confined to the so-called peripheral countries of the currency bloc.
Standard & Poor’s on Friday evening lowered its long-term rating to AA from AA+, maintaining a negative outlook.
The rating agency cited Belgium’s 578-day political impasse as a factor in its decision. Tensions between Dutch-speaking Flanders in the north and the francophone south caused the federal government to collapse in April 2010, and progress on forming a new administration has been glacial.
Belgian bond yields have risen precipitously in recent weeks, reaching 5.9 per cent for 10-year paper, as eurozone leaders continue to scramble for a solution to the protracted debt crisis.
After decades of budget laxity, Belgium has one of the European Union’s highest debt levels compared with the size of its economy, at close to 100 per cent of gross domestic product.
Once in the “core” of the eurozone, its standing in the eyes of the markets deteriorated after economic growth ground to a halt in the third quarter, in part because of sluggishness in Germany and the rest of the eurozone, Belgium’s major trading partners.
“With exports of over 80 per cent of GDP, Belgium is one of the most open economies in the eurozone and is therefore in our opinion highly susceptible to any weakening of external demand,” S&P said.
The fragility of the financial sector was another factor cited by S&P. Last month Brussels stepped in to bail out Dexia, the Franco-Belgian municipal lending specialist, buying its domestic retail arm for €4bn. It extended a further €54bn in guarantees to the parent company, leaving itself exposed to the banking downturn.
But the political paralysis has amplified Belgium’s problems. The caretaker government led by Yves Leterme has no mandate to impose the sort of austerity measures undertaken by most other eurozone countries, or the structural reforms that the EU has called for to improve long-term growth.
“Even after this downgrade the Belgian rating remains one of the strongest in Europe,” Mr Leterme said. But he stressed the need for politicians looking to form a new government to agree a budget for 2012.
Belgium is expected to issue €1bn-€2bn of long-term bonds next week, after about €400m of sales of sovereign debt to retail investors in the past two days.
●Hungary accused markets of launching “speculative attacks” after its bond yields rose to a two-year high above 9 per cent, the forint fell sharply and credit default swaps on its debt hit a record high when Moody’s cut the country’s credit rating to junk, writes Neil Buckley.
Moody’s move on Thursday hit assets across central Europe hard on Friday, with Poland’s zloty reaching its lowest level against the euro for nearly two-and-a-half years and its bond yields also rising sharply.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in