Belgium should avoid new world record of post-election crisis

BRUSSELS Tue Apr 29, 2014 1:30pm EDT

1 of 3. Flemish right-wing party NVA President Bart De Wever (C) gestures during an election meeting at the Concertgebouw in Bruges April 27, 2014.

Credit: Reuters/Eric Vidal

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BRUSSELS (Reuters) - Temuraz Sadoyan has no strong view on whether Belgium should split, but he is clear about what he wants from a future federal government after a May 25 election.

"Tax is the number one issue for me. I'm self-employed, but most of my time I'm effectively working for the state," said Sadoyan, who came to Belgium 21 years ago from Georgia and now lives in Asse, a town in the Dutch-speaking region of Flanders.

He is just the sort of voter the N-VA (New Flemish Alliance), already the largest party in Belgium's parliament, is seeking to attract with a campaign focusing on its tax-cutting credentials rather than its longer-term separatist aims.

It is a shift of emphasis offering Belgium hope that it will avoid a repeat of the 2010-2011 political crisis.

Then N-VA's demand to devolve more powers to Belgium's regions led to a world record 18 months of deadlock, eventually prompting alarmed investors to think of the country as "Greece of the North. Six other parties finally formed a government.

N-VA is again seen as the winner of this year's election, with up to a third of the vote in Flanders, from 28 percent in 2010, giving it the lead in subsequent coalition talks.

The party itself recognizes that, for the moment at least, there is no majority in Flanders for independence.

Its manifesto includes a proposal to turn Belgium into a confederation of largely autonomous regions, an idea that could lead to a prolonged stand-off with French-speaking parties vehemently opposed to the break-up of the country.

However, in recent weeks the N-VA has stressed its tax-cutting and law and order credentials, relegating its confederation demand to the background.

"We will go to the negotiating table with a list of demands but the emphasis will be on socioeconomic reforms," N-VA's parliamentary leader Jan Jambon told Reuters. "We want to be part of the next government."

Its proposals to cut income tax and set a time limit for unemployment benefit appeal to center-right Flemish voters who complain they are paying for benefits in French-speaking Wallonia, where the jobless rate is twice that of Flanders.

LEFT VS RIGHT DEBATE

Analysts say the party has recognized there is less appetite for change. Belgium has now pushed through reforms giving regions and communities more say on economic and employment policy, even if it does not go far enough for the N-VA.

"The consensus before in Flanders at least was for a reform of the state. Now it is only a call from the N-VA and even they have adjusted what they are asking for," said Dave Sinardet, politics professor at the Vrije Universiteit Brussels.

The focus of the election campaign has been on possible measures to accelerate economic recovery, boost competitiveness and reduce income tax, more of a left versus right debate than pro-Belgians versus Flemish nationalists.

The tax burden on employers and employees for labor income in Belgium is the highest in the 34-member Organisation of Economic Cooperation and Development (OECD), at 56 percent for a single person on the average wage.

The prospect of a center-right government including the N-VA appears possible given that the socialists of Prime Minister Elio Di Rupo are expected to emerge weakened from the polls.

Even at the best of times though, Belgian governments can take months to form. A government by Christmas might be considered a success.

The big question, according to Pascal Delwit, politics professor at the Universite Libre de Bruxelles, is whether the N-VA is willing to govern without further state reform.

"Sometimes they say yes, sometimes no," he said.

HIGH DEBT, FALLING COMPETITIVENESS

Could Belgium cope with another crisis?

While Belgium appeared to do manage most of the 18 months in 2010-2011 with only a caretaker government, the explosion of the euro crisis in 2011 alerted volatile financial markets to the country's public sector debt of around 100 percent of GDP.

Belgium's 10-year bond yield rose to almost 6 percent and ratings agencies began cutting the kingdom's credit status.

Voters sense the economic situation is less acute, but do not want a repeat of the 2010-2011 trauma.

"I hope the politicians have the brains to work together," said French-speaking Mehdi Toukabri from Brussels.

Economists say Belgium needs to address high wage costs and lower productivity, which have undermined the competitiveness of exports from chemicals and pharmaceuticals to beer, chocolate and other processed foods. Exports make up some 65 percent of GDP. Economic growth last year was just 0.2 percent.

"If the economic recovery continues then in the short term it's manageable, but if there are negative shocks then you get a focus on the big debt, which would be a problem. Longer term you're losing time for structural reform," said ING's Ledent.

($1 = 0.7204 Euros)

(Writing by Philip Blenkinsop; Editing by Angus MacSwan)

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