Belgium ends 19-month impasse to beat EU demands

Belgium fell in behind model eurozone pupils Italy and Greece on Saturday, its feuding politicians ending 19 months of deadlock with an 11th-hour budget deal that met EU strictures hours after a brutal downgrade.

“There is an agreement,” French-speaking Socialist premier-to-be Elio Di Rupo’s spokeswoman Ermeline Gosselin told AFP on the stroke of noon, as exhausted but elated politicians closed more than 500 days of struggling to craft a workable government.

The budget, crucially, will see Belgium’s public deficit fall to 2.8 percent of gross domestic product (GDP) in 2012 if respected — enough to avoid the ignominy, as soon as next month, of punishment leading to a possible hefty fine from the EU’s new ‘euro’ commissioner Olli Rehn.

In the end, it was a lashing from one of the world’s top three credit rating agencies — Standard & Poor’s — that led squabbling Flemish and French-speaking parties to bury the hatchet and find a middle ground that could accomodate spending cuts, tax increases and a radical overhaul of social choices.

Negotiators for the six parties involved said the deal “meets Belgium’s commitments to the European Union.”

If all goes to plan, and sources said all the parties factored in the latest data suggesting that 2012 could unleash a significant recession despite milder predictions, then the Belgian state would return to having a balanced budget in 2015.

But in order to get there, Belgium has had to agree to “long-term structural reforms” of the sort imposed on Greece, Italy and other euro countries, meaning its early-retirement options will disappear in a generational change over the coming years.

The deal will “sail through” the EU test, said Flemish liberal Alexander De Croo, whose decision to pull the rug from under the last fixed government lay at the root of an existential crisis that brought unwelcome global attention, beating war-torn Iraq’s previous record wait to form a government.

De Croo insisted it would also “convince financial markets,” immediately after Friday night’s S&P downgrade, which saw Belgium drop by one notch to AA and led analysts to talk of the eurozone core being just weeks from its own mayhem.

Di Rupo will give a press conference on Sunday focused on the way ahead for a Belgium once more projecting a unified image.

But the six parties only succeeded in agreeing on a government after they excluded the most powerful grouping in Dutch-speaking Flanders and Belgium’s biggest vote-grabber, Bart De Wever’s separatist N-VA from their negotiations.

De Wever can still be expected to have his say, drawing on deep-rooted backing in the north.

For now, though, Belgian federalists can be joined by the leaders of the EU in celebrating, two weeks from a crunch summit dogged by mounting doubts over their collective ability to resolve the debt crisis.

Friday’s ratings blow, after Greek, Portuguese and Irish bailouts, and with Italy, Spain and France also now under pressure, underlined a sharp escalation of the debt crisis at the end of a week that even saw Germany struggle to raise funds.

Concern has been growing rapidly that the euro currency, in the absence of a game-changing European Central Bank decision to mount a gigantic financial rescue, could be close to breaking point.

With Belgium’s national debt worth almost one year’s economic output, outgoing Prime Minister Yves Leterme had made it clear overnight he feared a rout when markets reopen on Monday if a way forward was not settled.

“It is blindingly obvious, we have to send a very clear signal… preferably before the markets open,” Leterme said of the bid to trim 11.3 billion euros off the deficit next year and some 20 billion in all by 2015.

His successful ultimatum came days after a frustrated Di Rupo offered his resignation to Belgium’s king: Albert II rejected the offer and sent Di Rupo back to work, although S&P may claim the greater share of the credit.