Belgian government collapses over Fortis affair

By Philip Blenkinsop

BRUSSELS (Reuters) - Belgium's government collapsed on Friday after a top court found signs that it had sought to sway a legal ruling on the future of stricken bank Fortis.

"(Belgian Prime Minister Yves) Leterme put the proposal (for a resignation of his government) to the cabinet and they have agreed to it," Leterme's spokesman Peter Poulussen said.

King Albert, who under the constitution must decide whether to accept the resignation, held talks with Leterme in the palace but deferred an immediate decision.

"The king is suspending his response and is immediately beginning consultations," the palace said in a statement of planned talks between the head of state and parties involved.

Leterme tendered his resignation a first time in July after failing to break a political deadlock among the country's linguistic groups, but the king refused it.

Observers said the likely next steps would be a reshuffled cabinet without Leterme or early elections, an option few of the ruling parties would want amid a deepening economic crisis and with the Fortis debacle on voters' minds.

"We'll have to look at how we assure stability in our country -- political stability we don't have at the moment. I hope that we'll at least find a way of managing things in 2009," Finance Minister Didier Reynders told Belgian television.

Leterme had been under pressure to quit over accusations that his office had sought to influence an appeal court ruling that last week froze the break-up of Fortis.

Earlier, an eagerly awaited report by Belgium's Supreme Court did not specifically target Leterme but concluded:

"All the above (in the report) of course does not offer ... legal proof of an attempt to interfere with the judiciary, but there are undoubtedly significant indications which point in that direction."

Leterme has denied trying to influence the appeal court, although he acknowledged that one of his officials had contacted the husband of one of the judges several times.

Fortis was carved up by the Dutch, Belgian and Luxembourg governments with France's BNP Paribas buying the Belgian operations after an 11.2 billion euro ($16.1 billion) cash injection failed to calm investor concerns over its health.

DISARRAY

Shareholders launched legal action, and the court victory has thrown the government's bailout plans into disarray.

They have seen their shares drop from almost 30 euros in April 2007, when Fortis launched its ill-fated bid for Dutch rival ABN AMRO, to just over 1 euro now.