Elio Di Rupo, the chief negotiator in charge of forming a government in Belgium, announced a deal on the 2012 budget on Sunday (27 November), paving the way for a cabinet to be unveiled as early as this week.
Belgium appears to have avoided catastrophe, having been entangled in a protracted government crisis since general elections held in June 2010.
Under pressure from the markets and threatened by financial sanctions at European level, Belgium is on the way out from the longest government crisis in its history, after negotiators found an agreement on the 2012 budget over the weekend.
The six political parties involved in government coalition talks clinched a deal on the 2012 budget after ratings agency Standard & Poor's had downgraded Belgium's credit to AA from AA+, with yields on 10-year government bonds approaching 6% on Saturday.
The European Commission had put additional pressure on Belgium, threatening the country with a €700-million fine if it failed to take measures to reduce the public deficit by mid-December.
"This is one of the most important fiscal consolidations since World War II. … We will present a responsible and rigorous 2012 budget," said Di Rupo, chief negotiator in charge of forming a cabinet and most likely Belgium's next prime minister. He said that savings of more than €11.3 billion had been agreed starting in 2012.
Calling on the nation
Speaking in French and in Dutch, Di Rupo, leader of Walloon Socialists, called on trade unions and citizens across the country to back the consensus reached by the French and Dutch-speaking parties – the socialists, liberals and Christian Democrats.
Di Rupo said that "efforts of a government and a parliament" were not enough to overcome the divide.
"Together we must roll up our sleeves to get the country out of the crisis," Di Rupo said, adding that the six political parties were hoping to form a government during the week.
He said that the agreed budget for 2012 would reduce the deficit to 2.8% of GDP, below the Maastricht criteria for the stability of the euro currency, and that the next budgets for 2013 and 2014 would allow the country to achieve a balanced budget.
The country will also reform its employment and pensions regulations. The legal retirement age will not be raised from the current 65 years, but the minimum age for early retirement will be raised to 62 by 2016.
Belgium's controversial wage indexation policy will remain in place, but it will revise its policy, much criticised by the Flemish-speaking part of the country, of giving unemployed people a percentage of their former salary indefinitely.
Belgium has set a record for being without a formal government (see background).
On 8 October, negotiators from eight political parties, involving the Greens on both sides of the country's ethnic divide, reached an agreement to overhaul the Belgian state.
The agreement will give the country's two main regions, Flanders and Wallonia, more power to raise their own taxes, setting them further apart and weakening the federal level.
Commission Vice President Olli Rehn, responsible for Economic and Monetary affairs, welcomed the agreement presented on Sunday by Belgium's Elio Di Rupo.
"I welcome the agreement […] on the measures to underpin the Belgian federal budget with the aim of bringing the general government deficit to 2.8% of GDP in 2012, as recommended by the EU Council, and of paving the way for further consolidation in 2013 and 2014.
"Mr Di Rupo's announcement that the budget law should be worked out very soon is equally important, as it should provide for a swift and full assessment by the European Commission under the excessive deficit procedure. We also take note of the structural reforms announced, especially those intended to restore fiscal discipline and enhance competitiveness, whilst preserving social fairness.
"These will be assessed in due time against the EU's Country Specific Recommendations, in the context of the European Semester," Rehn stated.
Leaders of the Party of European Socialists (PES), meeting in Brussels on Sunday, welcomed the breakthrough on negotiations on the formation of a new Belgian Government.
Outgoing PES President Poul Nyrup Rasmussen congratulated the two Belgian socialists parties (PS and Sp.A).
“The Belgian Socialists, led in negotiations, outstandingly, by Elio Di Rupo, have on this long road remained absolutely unwavering in their commitment to strong social standards, sound public finances and a sustainable economic plan for Belgium,” Rasmussen said.
Incoming PES President and former Bulgarian Prime Minister Sergei Stanishev said:
“This breakthrough in Belgium is part of a new trend for progressive policies in Europe. People are demanding change from the failed conservative policies. Belgium has today taken a progressive turn. Soon it will be Europe’s turn”.