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Energy bailouts push Belgium into the danger zone of debt – POLITICO

By on October 10, 2022 0

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The Belgian budget was already slipping before the coronavirus pandemic. And now, a series of emergency measures to protect consumers from soaring energy prices are pushing the government into even more precarious territory.

The balance between energy distributions and the growing national debt burden dominates the country’s budget discussions before Prime Minister Alexander De Croo delivers his annual State of the Union on Tuesday.

Budget Secretary Eva De Bleeker told POLITICO that the country has no choice but to try to fight the debt bomb “but at the same time we have to provide ad hoc resources to support citizens and businesses during this crisis”.

Belgium has announced a range of measures to help consumers, including a €392 cut on electricity and gas bills in November and December, and is now looking to what can be done to help the industry – which should be hit with mandatory wage increases. linked to inflation.

All this government largesse means that economists – and some politicians in the more fiscally conservative Flemish nationalist camp – are now sounding the alarm.

The country has the sixth highest debt burden in the EU, at around 108% of gross domestic product in 2021. If current trends continue, Belgium will reach a debt burden of 116% by 2027 This is all the more worrying given rising interest rates, which are rapidly driving higher costs, De Bleeker said.

European spending rules, known as the Stability and Growth Pact, normally limit the annual budget deficit to 3% of GDP, but Belgium’s annual budget overruns stand at 6.1% of GDP .

“Belgium’s dramatic debt problem is quickly becoming even more dramatic,” said Sander Loones, a parliamentarian from the Flemish nationalists. “Once the public debt reaches 120%, you risk a snowball effect on the financial markets. The current government does not realize the extent of this problem.

Less margin

Budget Secretary Eva De Bleeker tells POLITICO the country has no choice but to try and tackle the debt bomb | Benoît Doppagne/Belga Mag/AFP via Getty Images

The tight fiscal situation leaves little room to spend big to help cushion energy prices.

As a liberal politician, De Bleeker sees it as her duty to watch the books closely. But in a fragile coalition of seven ideologically different parties, it’s not easy, she admitted.

“It may not be the best job to keep warning my colleagues,” De Bleeker said in his office in Brussels’ finance tower. “But I do it with a lot of conviction.”

Some of his colleagues, however, have a different perspective. The Greens and Socialists fired warning shots that debt reduction measures were unconscionable given the economic turmoil. On the contrary, they argue, the government must help limit the impact of the current crises.

They are not alone. Too many cuts now will undermine the economy and society, said one of Belgium’s unions. Some economists also argue that the current crisis calls for Keynesian measures. “You have to fix your roof when the sun is shining, not when there’s a storm,” said André Decoster, professor of public finance at Katholieke Universiteit Leuven.

“Temporary and targeted responses will fade again as the economy recovers. After that, the government needs to tackle its level of debt, which is indeed unsustainable,” he added.

Ongoing budget negotiations will prepare for next year’s and 2024’s budgets, to avoid thorny discussions ahead of the 2024 election. But they are likely to focus more on additional spending measures rather than additional cuts, admitted officials.

One of the big challenges is that Belgium still has a system of mandatory wage increases linked to consumer prices. Employers are panicking as soaring food and energy prices translate into steep wage increases.

In January 2023, for example, most private sector employees will see their salaries increase by more than 10%. The issue is so politically sensitive that an exemption is taboo, but the government is considering ways to cushion the effect for businesses, De Bleeker said, such as spreading costs for businesses over time.

In the long term, Belgium must look at mandatory wage increases, De Bleeker said, although she admitted now was not the time to do so. The same goes for measures to hire more people to meet rising pension costs.

To take such painful action in a coalition government, it helps to be able to point the finger at the bad cop, and this is where the EU’s Stability and Growth Pact can take some of the criticism.

“If you have such an instrument, you have a framework to work within and you can also apply it to the different political parties in government,” De Bleeker said.

Paola Tamma contributed reporting.

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