Belgian parties thrash out budget deal at last

BELGIAN political parties negotiating a coalition agreement reached a deal on the 2012 budget yesterday, clearing the last major obstacle to the formation of a new government more than 18 months after elections were held.

The deal came hours after ratings agency Standard & Poor’s downgraded Belgium’s credit to AA from AA+, piling pressure on the country to act. S&P said difficulties in Belgium’s banking system and the government’s inability to respond to economic pressures had contributed to the downgrade.

After the downgrade on Friday, Belgium’s caretaker prime minister, Yves Leterme, urged budget negotiators to reach a deal before markets open tomorrow, fearing that the country’s borrowing costs could be pushed beyond sustainable levels.

“The formateur and the negotiators reached a major milestone in the formation of the government,” the negotiators said in a statement, referring to the Belgian term for the person responsible for negotiating the coalition, Elio di Rupo, who is likely to be the next prime minister.

“They have developed budgets for 2012, 2013 and 2014 and reached an agreement on long-term structural reforms in employment and pensions,” the statement said.

The negotiators said that under the deal, Belgium would reduce its budget deficit to 2.8 per cent of gross domestic product in 2012 from 3.6 per cent expected this year and balance its books in 2015.