EU criticizes Belgian budget, sees more austerity

AP News
Posted: Jan 06, 2012 8:25 AM
EU criticizes Belgian budget, sees more austerity

The European Commission has criticized Belgium's 2012 budget as too optimistic, indicating that the country has to adopt more austerity measures or risk sanctions.

The country's finance minister quickly reacted to the Commission's intervention, saying Friday that the government was determined to meet its fiscal targets this year.

Belgium has promised to cut its budget deficit to 2.8 percent of economic output this year, from around 3.6 percent in 2011. But the Commission, the European Union's executive, believes the Belgian government won't be able meet this target unless tax revenues or spending cuts are increased.

The Commission's criticism of the budget is a particularly sensitive issue in Belgium, where political parties needed more than one and a half years to set up a government, which was finally sworn in in December.

Prime Minister Elio Di Rupo had to balance the demands of the country's strong Dutch-speaking community, which has been demanding more financial autonomy, and the French-speaking region, which is weaker economically.

But Belgium has one of the highest debt loads in the eurozone and analysts fear that it risks being dragged into the currency union's debt crisis. Under EU rules, Belgium has to bring its deficit below 3 percent of GDP and spell out how it plans to reduce it debt to below 60 percent of GDP over the long-term, from about 100 percent currently.

"It is normal that the Commission is asking us questions," Belgian Finance Minister Steven Vanackere told reporters outside the government offices. "The budget was set up at the end of the year at high speed. It was not the normal way to do things."

He stressed that the government would strive to get its deficit below the 3 percent limit this year. "Belgium has not plans to skirt its responsibilities," Vanackere said. "We want to _ also for ourselves and not for Europe _ make sure that the deficit gets under the 3 percent."

The EU's Economic Affairs Commissioner Olli Rehn last fall threatened to hit Belgium _ along with Malta and Cyprus countries _ with sanctions under the bloc's new, stricter budget rules. Two non-euro countries _ Hungary and Poland _ were also suspected of overspending, but they would not face financial penalties.

A spokesman for the Commission said Friday that Rehn's office was seeking clarification from the governments of all five countries to assess whether their estimates for both revenue and expenditure estimates were "credible." No decision on sanction had been taken yet, he said, but added that it could come very soon.

The EU's executive has been taking a much more active role in policing member states' budgets after lackluster enforcement of the bloc's budget rules allowed countries like Greece or Italy run up high debts.

Under the new sanctions regime, a country that is not doing enough to reduce its deficit and debt will have to pay an interest-bearing deposit of 0.2 percent of GDP, which could eventually be turned into a fine. The new rules also make it harder for countries to block sanctions against their partners.

Julien Manceaux, an economist at ING in Brussels, said the intervention from the Commission did not come as a surprise, adding that the Belgian government is already set to re-examine this year's budget in February.

"The Belgian deficit is among the lowest in the eurozone anyway so it is certainly not a reason to panic," he said. "But it is for sure that markets will keep an eye on the decisions that will be taken again in 2012 to stabilize debt trajectory."


Raf Casert and Mark D. Carlson contributed to this article.