Think BIIGS: There's One Euro Country Under the Radar
Belgium faces an important test Monday, when it aims to sell between 1.5 billion euros ($1.9 billion) and 2.5 billion euros worth of bonds in an auction that will indicate the level of investor confidence in the nation plagued by political turmoil and high levels of debt.
The auction of 2014, 2020 and 2035-dated bonds comes as bond vigilantes are increasingly targeting the country of 11 million people amid concerns over its high level of debt and political instability.
Belgium could be caught up in the same web as the peripheral euro zone nations of Portugal, Ireland, Italy, Greece and Spain - the so-called PIIGS - if it does not succeed in forming a government soon to reduce the budget deficit through fiscal austerity and bring down its debt, some analysts say.
Against the backdrop of the euro zone debt crisis, credit default swaps linked to Belgian debt – indicating the cost of insuring Belgian debt against default - rose to a record high this week.
In its latest report on Belgium, rating agency Standard & Poor’s wrote that its AA+ rating on the country’s long-term debt – the second-highest rating at the agency – could come under downward pressure if a continued political stalemate were to diminish the authorities' capacity to address the “outstanding challenges”.
Public debt is just under 100 percent of gross domestic product, the third-highest in the European Union, with only Italy and Greece preceding it, EU data showed.
“There is a political risk, and it is taking very long (to form a government), but there is no chance of default right now,” Vanneste said.
“This is of course a problem," Ledent said. "But the 2010 budget deficit will probably be around 4 percent next year…And contrary to the peripherals we are fully benefiting from German growth.”
Vanneste agreed there was no real risk in the short term, as Belgium would be able to meet 2010 and 2011 commitments to cut its budget deficit.
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