UPDATE 1-Belgian king asks for broader caretaker govt role

Wed Feb 2, 2011 12:17pm EST

Related Topics

* King seeks broader caretaker govt

* Asks acting PM again to present 2011 budget

* Impasse lasted record of more than 7 months

(Adds palace statement, background)

By Robert-Jan Bartunek

BRUSSELS, Feb 2 (Reuters) - Belgium's King Albert II asked acting Prime Minister Yves Leterme on Wednesday to present a 2011 budget and widen the caretaker government's powers while a political deadlock drags on.

The king also asked acting Finance Minister Didier Reynders, a French-speaking liberal, to mediate in efforts to form a new government in the linguistically divided country after the Dutch-speaking Flemish majority rejected previous compromises.

Belgium has been in political limbo since a parliamentary election on June 13, raising concerns in financial markets it will be unable to rein in a public sector debt approaching the size of its annual output.

A palace statement said the king had asked Leterme to present a budget for this year and take required measures "to answer soon European demands regarding budget policy and structural reforms in the coming years".

"The king has also asked the prime minister that the caretaker government should take all social, economic and financial measures to guarantee the welfare of the people," the statement said.

Meanwhile, Reynders will have two weeks to see whether a compromise can be reached on the main issues on devolution of more powers to the regions holding up the talks, and will report back to the king on Feb. 16. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

ANALYSIS: Pressure mounts on Belgium [ID:nLDE7060RH]

COLUMN: Belgium could be game changer [ID:nN1088581]

Q&A: Why Belgium can't form a government [ID:nLDE70B1V9] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

TIGHTER BUDGET

The request followed up on the monarch's unusual call last month for Belgium to draft a tighter budget than one already agreed with the European Union. [ID:nLDE70917R]

The current plan for a deficit of 4.1 percent of annual output (GDP), although likely to fall below the euro zone average, had not been enough to calm financial markets. Belgium's public debt rose to 97.2 percent of GDP last year and is set to edge up to 98.1 percent without additional measures.

Ratings agency Standard & Poor's warned the country late in December that it could lose its AA+ rating if it failed to form a government within six months [ID:nLDE6BD1B6].

The premium investors demanded for holding 10-year Belgian government debt versus benchmark German equivalents approached a euro lifetime record of 149 basis points in January, although has steadily fallen in recent weeks to around 80 now.

Leterme's plan to cut the deficit to below 4 percent and the prospect of an expanded euro zone rescue fund have eased market concerns. [ID:nLDE70B0RY]

The deadlock has now run 234 days, a record in Europe. One website (lerecorddumonde.be/) is counting down the time the impasse would need to continue for Belgium to pass the current world record of 289 days held by Iraq.

The stalemate is the result of demands from Dutch-speaking parties to give more powers to their region of Flanders and resistance from French speakers who fear devolution could lead to the end of the 180-year-old country.

A previous mediator, former Flemish Socialist leader Johan Vande Lanotte, quit his efforts to restart negotiations last week after 99 days. (Writing by Philip Blenkinsop, editing by Paul Taylor)

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