In the Financial Times, the headlines: "Inertia complicates Belgian debt fears" were on the first page a few days ago. Albeit the country has budget deficit that is within the limit of the union and has an economy that runs trade surplus, worries over the sovereign debt of Belgium adds another dead weight to the negative sentiment on the recovery of European economy. According to the FT, "Belgium’s debt is currently at 99 per cent of its gross domestic product, the highest in the eurozone after Greece and Italy, and is forecast to exceed GDP by the end of the year." The structure of the country's debt is the source of the problem. 82% of the short term bills is owned by foreigners with a short maturity, which means that the country will have to regularly refinance. In addition to that, Belgium's recovery from the recession has been extremely sluggish, with a GDP of only 0.1%, which is below the euro-zone average.
Besides economical woes, Belgium also faces social instabilities that roots from the division of the country into Dutch -speaking Flemish majority and Francophone minority. The differences in language led to many conflicts, one of each was the division of the coalition government in April that led to early elections that will be held on June 13th. I am in anticipation to see what will be the outcome of the election and whether the new government will be able to patch the wound that has caused so much hemorrhage to the country. Without internal social stability, it would be very hard for Belgium to achieve economical stability, which will ultimately have a negative influence on Europe.
Luong T. Hai
Summer Analyst
Analyze Capital LLC
Adding another country to the list of already ailing ones. How far can the EUR go?
ReplyDeleteNice post Hai. Its crazy that so many of the worlds developed countries struggle with massive debt to GDP ratios. One would think that a wealthier country would have smarter citizens whom are willing to pay attention to important details such as outstanding debt.
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