January 11, 2011 / 11:52 AM / 9 years ago

Belgium readies budget cuts after king intervenes

* Interim leader to present 2011 budget plans on Wednesday

* King to decide Tuesday evening on mediator’s resignation

By Philip Blenkinsop

BRUSSELS, Jan 11 (Reuters) - Belgium’s caretaker government gave itself 24 hours on Tuesday to prepare budget cuts designed to calm financial markets unsettled by the country’s heavy debt and political crisis, after an unusual intervention by the king.

Yves Leterme, who has stayed on as prime minister for seven months since an inconclusive parliamentary election, will present plans for 2011 to key cabinet members on Wednesday.

With bond markets showing concern that political deadlock will prevent the country from tackling its debts, King Albert took the extraordinary measure of asking Leterme to draft a budget tighter than one already agreed with the European Union. [ID:nLDE70917R]

Belgium’s king, like other European monarchs, traditionally remains outside economic and political debate.

The current plan for a deficit this year of 4.1 percent of annual output (GDP), despite being likely to fall below the euro zone average, has not been enough to calm financial markets.

The premium investors demanded for holding 10-year Belgian government debt versus benchmark German equivalents rose 8 basis points to 145, just short of the record 149 points hit on November 30.

Belgian newspaper De Morgen said on Tuesday it expected Leterme to seek 4 billion euros of savings, bringing the budget down to 3.7 percent.

Belgium had largely been untouched by the euro zone’s sovereign debt crisis until the end of November, when concerns struck about contagion from Ireland, Greece and other troubled economies. Belgium’s debt-to-GDP ratio of nearly 100 percent was the third highest in the European Union last year.

Economists and market speculators have begun to view political paralysis in the linguistically divided country of 10.6 million people as harmful for its efforts to reduce debt.

King Albert was due on Tuesday to receive a mediator who has been trying to break the political deadlock between French- and Dutch-speaking parties for almost three months without success.

Johan Vande Lanotte tendered his resignation to the king last week after the country’s two largest Dutch-speaking parties rejected his proposals. The monarch was expected to announce on Tuesday whether or not he had accepted Lanotte’s exit.

Reporting by Philip Blenkinsop; Editing by Peter Graff

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