”At the economic level, in the short term, the situation is not excessively worrying in the sense that Belgium still has stable access to affordable interest rates on the financial markets. The question is until when can we say that in the short term, everything is going well.”
“Longer term, extends the economist, the situation is worrying. A structural deficit of 4 to 5% is a lot. And the problem is above all that it should continue to worsen significantly in a scenario with unchanged policy. If governments take no action, the costs linked to the aging of the population (in terms of health care or pensions) will be expensive, especially with rising interest rates. If we do nothing, the situation will get worse. We must not dramatize, but on paper, it is dangerous, and the debt costs.”
“Investing massively in the energy transition”
The situation therefore requires a reaction. “Everything is not going to explode tomorrow, but we depend on the markets, the private sector, and their “benevolence” towards us. They know that Belgium is a serious country, which has made significant efforts in past decades. But at a given moment, the financing needs are still there and the markets are not going to finance an increasing debt indefinitely. There is major work to be done to put public finances on a sustainable path. In addition, it is absolutely necessary to find money and budgetary space to invest massively in the energy transition. That’s the underlying challenge.”
Even with relaxed European rules, the budgetary effort required would be significant for Belgium
On the financial effort itself, Gilles Thirion remains cautious. “It is the political actors who must determine this. But it will be necessary to minimize the social and economic impact of budgetary efforts. The level of expenditure is very high in Belgium, but the level of revenue is also high. It seems inevitable to cut spending, but we must not close the door to revenue measures: there are tax loopholes, a tax reform to be carried out which could have a positive impact on the economy. There are still quite a few subsidies for fossil fuels…”
The Belgian deficit is less heavy than expected
“Solidarity between levels of power”
What is certain is that all levels of power will have to participate in the effort, insists the expert. “It will take coordination of all levels of power and a certain solidarity to achieve a plan that is credible in its measures and over time. This will be a very significant challenge. As such, the 2013 cooperation agreement (on budgetary stability, Editor’s note) will undoubtedly be a platform to use to coordinate public finances. In the past, this cooperation agreement has not been implemented. Applying it correctly would undoubtedly be a step towards more robust multi-annual budget planning.”
“We must avoid Europe taking budgetary orders from Belgium”
Can this cooperation be facilitated by the existence of mirror coalitions at the federal level and in the federated entities? “That might make things easier. But what is going to be very important now is that on September 20, the Commission expects the medium-term budgetary plans of the Member States. In this plan, States have the possibility to request an extension of the adjustment trajectory from four to seven years. This means that the budgetary effort to be made each year would be lower, because it is spread over seven years. In return for a less restrictive trajectory, it will be necessary to propose a reform and investment plan that is organized at the country level. (Editor’s note: which undoubtedly presupposes that all governments have been formed beforehand). The challenge will be that Belgium can request this extension, if it wishes, for the month of September. If Belgium fails to submit a plan on time, it risks finding itself on the more restrictive correction trajectory, over four years. That said, in any case, the trajectory that will be proposed by the European Commission – and which should be communicated soon – will entail significant efforts. To give an idea, according to the new legislation, it will be necessary to provide at least an effort of 0.5% of GDP for seven years (or 2.9 billion euros per year if we refer to the gross domestic product of 2023, Editor’s note). This is a major economic and political challenge.”
