BRUSSELS, Sept 5 (Reuters) - If Belgium were a marriage it would surely have ended by now.
Each fresh election brings bickering between leaders of the Dutch-speaking majority and the poorer French-speaking region, and months of tortuous talks and mediation to bring both sides back together.
Friday’s collapse of coalition negotiations, almost three months after a parliamentary election, caused senior French-speaking Socialist Laurette Onkelinx to warn that a divorce was now in sight.
"We must start preparing for the end of Belgium," she told Sunday’s edition of La Derniere Heure newspaper.
Rudi Demotte, president of the French-speaking region of Wallonia, told Belgian radio that francophones should start to consider their options, including a future without Belgium.
Analysts said the comment by Onkelinx was, for now at least, more political theatrics than a genuine warning, although one that could stir the interest of financial speculators.
PLAYING WITH FIRE
To date, Belgium’s political stalemate has had little impact on markets, mindful perhaps that it took nine months to form a government after the 2007 vote. But that could change.
"I’m afraid the political parties are playing with fire," said Philippe Ledent, economist at ING in Brussels. "The financial markets may start discussing the probability, low as it is at the moment, that the country will split." There are reasons for markets to be concerned about Belgium.
Principal among them is that the country’s debt-to-annual output (GDP) ratio is the third highest in Europe, and forecast by the central bank to rise above 100 percent next year.
The central bank chief said in May that drawn-out coalition talks would damage public finances and Belgium’s image, particularly as it has taken on the rotating presidency of the European Union in the second half of this year.
Caretaker Prime Minister Yves Leterme has bought some time with a bill to reduce the budget deficit to 4.8 percent of gross domestic product this year, from a previous plan of 5.6 percent.
However, a new government should already be setting out plans for 2011 and beyond.
The head of Belgium’s employers federation warned at the start of the year that Belgium risked becoming "Greece on the North Sea" without measures to improve its competiveness — measures that a new government would need to take.
Belgium is not a new Greece for now and its political crisis is unlikely to affect the euro. Unlike Greece’s, Belgium’s economy grew in the second quarter. According to an ING report this month, private savings could almost pay off Belgium’s national debt twice.
Still, the premium investors demand to hold Belgian bonds over benchmark German bunds could inch higher as the crisis extends and talk of a split grows.
"For now, there’s just a measure of uncertainty. If it progresses further, the spread would increase as who would still invest in a country that might no longer exist," said Ledent.
Carl Devos, professor of politics at Ghent University, said Belgium was not really on the verge of breaking apart and that a sense of calm was returning — at least among the people that mattered.
The leaders of the two largest parties, Elio Di Rupo of the French-speaking Socialists and Bart De Wever of the Flemish spearatist N-VA, have each led failed coalition talks. Both welcomed the king’s appointment of two new mediators.
The two could yet pull off a deal that balances Flemish demands to gain more powers for Dutch-speaking Flanders and the concerns of French speakers, who fear their poorer region will suffer from devolution.
"I think financial markets may have more intelligence than we assume," said Devos. "We could have a deal tomorrow, but we would have another unstable government."
"It’s better to take time to reach a good deal on state reform along with a clear savings plan."
