Belgium's lengthy political crisis deepened further on Thursday as mediator Johan Vande Lanotte (pictured) offered his resignation after failing to build a consensus between Flemish and French-speaking parties.
REUTERS - Belgium's long political deadlock tightened and the chances of new elections grew on Thursday as a mediator stepped down after failing to resolve a seven-month-old row between French and Dutch-speaking parties.
Investors are increasingly nervous about the country's ability to tackle its large public debt after more than 200 days of being managed by an interim government in the absence of a working coalition following June elections.
Flemish Social Democrat Johan Vande Lanotte had been appointed to look for common ground between seven parties from Dutch-speaking Flanders and French-speaking Wallonia after their efforts to form a government failed in October.
But he handed in his resignation to the country's king on Thursday after the two largest Flemish or Dutch-speaking parties rejected his proposal late on Wednesday.
In December, credit rating agency Standard & Poor's warned it would downgrade Belgium's credit rating unless a government was formed soon.
"There is an old English saying: You can take a horse to the water but you can't force it to drink," mediator Vande Lanotte told a news conference, after months attempting to resolve a row that centres on the prosperous Dutch-speaking region's reluctance to subsidise poorer French-speaking Wallonia.
The cost of Belgium's borrowing rose in response to the news, with the Belgian/German 10-year bond yield spread widening to 114 basis points, up around 12 bps from Wednesday.
The spread hit a high of around 150 bps in late November when a European Union and International Monetary Fund bailout for Ireland failed to calm jitters over the euro zone's debt problems.
Peter Vanden Houte, chief economist at ING Belgium, warned that although the initial market response to Thursday's news was muted, that could change if nervousness about the euro zone intensified again.
"We won't see a narrowing of the spread until there is a workable solution to Belgium's problems," he said.
Analysts now believe that elections in the country of 10 million are increasingly likely. "If nothing else is possible, you have to vote in a democracy," said Carl Devos of Ghent University.
"It's the 'control-alt-delete' of the political process. It is not a structural solution to the problem but sometimes things improve afterwards."
An emergency government with a wider mandate than the current caretaker cabinet headed by Yves Leterme has also been suggested, although this has received a cool response from the Flemish parties who want the disputed issues dealt with now.
Vanden Houte said he believed they may, however, accept the idea. "They could say: 'we could form temporary government and at the same time continue the negotiations that have been going on at present'."
Date created : 2011-01-06