Tags: Europe Financial Crisis

S&P May Downgrade Belgium by June

Tuesday, 14 Dec 2010 07:57 AM

Belgium — so far largely unscathed by Europe's debt crisis — may have its credit rating downgraded by June next year if a new government is not formed soon, credit ratings agency Standard & Poor's said Tuesday.

The agency said that prolonged political uncertainty could hurt Belgium's credit standing and as a result it revised its outlook on the country's debt to negative from stable.

It warned that a downgrade of the current AA+ rating could occur within six months if a new government is not formed soon — Belgium is currently facing political deadlock, after an inconclusive election in June was followed by an inability of the parties to forge a consensus across Belgium's linguistic divide.

"We believe that Belgium's prolonged domestic political uncertainty poses risks to its government's credit standing, especially given the difficult market conditions many eurozone governments are facing," said Standard & Poor's credit analyst Marko Mrsnik.

"On the other hand, if we believe that the government's debt trajectory has stabilized or will improve and if some progress is made on other areas important for strengthening the social contract, ratings could stabilize at current levels," Mrsnik added.

Belgium's finances have so far not caused investors serious concern during Europe's financial crisis. It is generally considered to be less threatened than Greece, Ireland, Portugal and Spain, partly because its annual borrowing are less. Greece and Ireland have needed international bailout loans, and markets fear the crisis will spread to Portugal and Spain or even countries with stronger economies and better financies such as Belgium or Italy.

Belgium's overall debt stands at a high level of 94.6 percent.

Negotiations to push through more autonomy for the country's Dutch and French-speaking regions have failed to produce any tangible result over the past half year, with no side willing to make concessions significant enough to break the deadlock.

Prime Minister Yves Leterme has been running affairs in a caretaker capacity and the government even received plaudits for its handling of the six-month rotating presidency of the European Union.

Financial markets however have increasingly been eyeing the continuing deadlock between the 6 million Dutch-speaking Flemings and 4.5 million Francophone Walloons as a sign of weakness in the handling of the nation's economic affairs.

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