Short Belgium

Yet Belgium is a mess. Its sovereign debt to GDP is 100%, up from a trough of 84% a few years ago, and its budget deficit is 5% of GDP. Belgium’s public debt is held abroad to the tune of 69% of GDP and its private sector foreign liabilities are another 162% of GDP, giving a total percentage of foreign credit dependence (charitably excluding inter-company borrowing) only surpassed by the UK and Ireland in the EU (where banks have huge FX liabilities) — see Figure 3. On these ratios, Belgium leaves the PIIGs at the starting block. And Belgium’s overall securitised debt burden (public and private) is only surpassed by that of Ireland (Figure 6).

To stabilise its public debt to GDP ratio, Belgium needs to run an annual primary surplus of 4% of GDP at today’s interest rates and would need an annual primary surplus of 5% if its bond yield rose to the same level as Spain’s. That compares with a current primary budget deficit of 1.3% of GDP.

And there is another special factor for Belgium. Political risks are high. There is no government, the last one having fallen on the usual linguistic sword a few weeks back, and no prospect of one for months. So far, markets, having little understanding of Belgium’s arcane and repetitive linguistic political crises, have cheerfully ignored this one too.

But this time, they are wrong. Unlike the Greeks, who seem to like being Greeks and being in Greece, Belgium is a country with a dearth of nationals proud to be Belgian and where growing swathes of the population want to be in another state of their own creation. This is not a good scenario for taking tough decisions on public debt at a national level and making the necessary political compromises (upon which, along with beer and chocolate, Belgium’s international reputation depends).

Every political crisis brings Belgium close to the cliff edge of being no more — at least as we now know it. It would be unwise to bet the house on this crisis being the ultimate one, but prudent to bet on it being the beginning of the endgame for Belgium.

-FT Alphaville