The new, stricter budget rules of the European Union will be a shock to the system for Belgium, says professor Marc De Vos.
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This afternoon, the European Parliament approved the new, stricter budget rules that the European Union (EU) imposes on the member states. Countries with a debt ratio of more than 90 percent of gross domestic product (GDP), such as Belgium, will have to reduce it by an average of 1 percentage point per year. Countries with a debt ratio between 60 and 90 percent are expected to make an annual effort of 0.5 percentage points (read more). Four questions for Professor Marc De Vos.
How drastic are the new budget rules?
MARC DE VOS. “For the eurozone, they are a kind of normalization of the standards of budgetary discipline that must guarantee stability. For a country like Belgium, with its double bad starting position due to a high debt ratio and large deficits, they are a real shock to the system. We will wake up shortly after the elections, while we have a caretaker government, to Europe’s demand for a recovery path of four to seven years, which will probably require around 4 to 5 billion euros in savings per year. We haven’t seen that since the Global Plan under then Prime Minister Jean-Luc Dehaene in the early 1990s. Then Belgium also had to do everything it could to be admitted to the eurozone. So it really is a historical déjà vu.”
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And then we haven’t even mentioned other expenses that come our way?
THE FOX. “Of course, and that is the difference with the nineties. Now we are faced with peaking aging costs in the coming years, with investment needs for climate and energy, with the demand for more defense expenditure… We have to realize that on top of that. For Belgium, with a politics that is so addicted to debt, it is a real wake-up call. Unfortunately, we have to conclude that this reality is not yet really dominant. There are trial balloons about taxes and savings, some more realistic than others. But you have to get all that together in a compromise for a government. Moreover, the challenge lies at all levels of authority. So I think this is the most difficult budget puzzle in generations for Belgium. The question is whether our political landscape, with its fragmentation and community divisions, is capable of this. There will certainly be pressure from Europe.”
Maybe that just helps: Europe has to do it?
THE FOX. “Belgium always needs external pressure to reform. This was no different with the Global Plan. It will remain to be seen how hard Europe will play. There is always a small difference between theory and practice. But we are among the worst students in the class and I cannot imagine that Europe would immediately bury the new rules. It will also be a very hard budgetary reality for the next legislature, we will have to crack some very difficult nuts. It will be a combination of everything: savings and efficiency, ending subsidies and reconsidering taxes.”
Europe has barked before, but not always bit. Will it bite here?
THE FOX. “The eurozone and the European Union are not strong internationally, so people will really pay attention to whether they are sufficiently robust and attractive on the financial markets. So I cannot imagine that people will be very lenient with a country like Belgium. By the way, the biting has already started. Even though the rules have been in brackets in recent years, there were reform processes that had been agreed with Europe, for which we did not receive any recovery money because our pension reform was not accepted.
“The European Commission now leaves more room to negotiate about how the budget is structured. There are conditional exceptions regarding climate, energy and defense. The zone has become a bit grayer. That makes me believe that Europe will try to make this happen, but will leave room for tailor-made solutions. It will then become clear how creative we can be here to be credible towards the European Commission.”
