By Philip Blenkinsop
BRUSSELS (Reuters) - Belgium's squabbling parties said on Thursday they had overcome a major stumbling block, raising the prospect that they could form a new government 15 months after a parliamentary election.
After 10 hours of talks, leaders from eight parties emerged just after midnight to announce that they had an agreement over the electoral boundaries, a thorny issue that has divided French- and Dutch-speaking politicians for a decade.
"This is the greatest stumbling block in Belgian politics of the past 10 years and the eight parties have finally succeeded in clearing it," said Alexander De Croo, head of the Flemish Liberals, who had brought down the previous government last year over its failure to solve this issue.
"Everything is now in place to start real coalition talks."
French-speaking socialist Elio Di Rupo, whom the country's king has asked to form a government, said the agreement had unblocked negotiations but that there was more to be done.
"The eight parties succeeded together in clearing the obstacles that had caused the problems in recent days," Di Rupo said in a statement. "The work is far from done and there are still many issues to discuss."
Only 24 hours earlier, Di Rupo had described negotiations as "seriously blocked" and said he would launch a final bid to rescue the stalled talks.
King Albert II, who plays an important role in the formation of coalitions, flew back from his holiday in France due to the serious political situation.
The king had asked Di Rupo on Monday to conclude talks as quickly as possible. Even after the breakthrough, it is likely to take several more weeks for a government to be formed.
Belgium has been in political deadlock since a parliamentary election in June 2010, as parties from both sides of the linguistic divide consistently failed to agree on the future make-up of the country.
Belgium is currently administered by a caretaker government headed by Yves Leterme, who said on Tuesday he would leave by the end of the year to take on a post at the OECD.
Belgium has come under fire from financial markets due to a public debt 96 percent of annual output and the lack of a fully fledged government capable of carrying out structural reforms.
Ratings agencies Standard & Poor's and Fitch have both threatened to cut Belgium's AA+ credit rating, arguing the lack of government undermined budget efforts in one of the euro zone's most indebted nations.
Belgium's debt-to-GDP (gross domestic product) ratio last year was behind only Greece and Italy in the euro zone and on a par with bailout recipient Ireland.
However, the caretaker government has forecast the public sector deficit will decline to 3.3 percent of GDP this year from 4.1 percent in 2010, figures well below the averages for the euro zone.
Leterme said on Tuesday that his caretaker government was ready to deliver a 2012 budget that would save between 7 and 8 billion euros and bring the public sector deficit below 3 percent of GDP. [ID:nLDE78C0FS]
(Reporting by Philip Blenkinsop; editing by Philippa Fletcher)