VIEWS FROM THE CAPITALS

Spring 2007

par Marc De Vos

Belgium’s federal government – a somewhat implausible coalition of socialists and centre-right liberals – is entering its final year in office with surprisingly high hopes of winning another term. This so-called “purple government” of Prime Minister Guy Verhofstadt was, until recently, widely expected to be the last of its kind. Relations between the coalition partners had crumbled and in Flanders especially the liberal party had slumped in the opinion polls.

But political futures can change very fast. A combination of events has now strengthened the coalition’s determination to stick together. After suffering a string of political scandals, the Socialist Party in French-speaking Wallonia wants to hold onto federal power to re-establish its credibility among the voters. Hardly a month has gone by without some new disclosure about an abuse of public finances in a socialist constituency and in local elections last October it was knocked down although not out.

The Liberal Party in Dutch-speaking Flanders also needs to continue in power to consolidate its position before the federal elections later this year. Flemish liberals were also punished at last autumn’s local elections. The party has now chosen to exorcise a rebellious conservative senator, Jean-Marie Dedecker, while publicly reinventing itself as a centrist and progressive party. This re-branding exercise is the brainchild of high-profile policy advisor Noël Slangen, who appears to have taken effective control of party strategy away from the party’s president.

Flemish liberals and Walloon socialists therefore share a mutual pragmatic desire to ensure that the current federal administration completes its full term. It is against this background that an emboldened Verhofstadt presented his government’s final policy declaration to parliament last October. It has become customary for the Belgian prime minister to give a US presidential-style “State of the Union” address at the start of each political year, and his speech setting out his aims for 2007 resounded with an optimism that was more typical of the early heyday of the purple experiment. Verhofstadt promised to deliver more jobs, more social protection and a balanced budget.

Only the windfall tax revenues that have resulted from the recent economic recovery in the EU-15 made such a set of promises possible. Economic growth was the progenitor of the first liberal-socialist coalition in 1999, and only a fresh growth spurt can sustain the otherwise contradictory policy goals of the liberals - free market economics and lower taxation – and the redistributive social policies of the socialists.

Belgium’s declining growth rates in recent years had emptied government coffers and soured the relationship between the coalition parties, with the liberals forced into concessions as their popularity sagged. It remains to be seen whether economic growth can save the purple government this time around.

Whoever wins the election will have some daunting demographic issues to face. The retirement of the baby boom generation is going to start having a serious impact on Belgian public finances from 2012 onwards, and combined with the declining birth rate, this will put increasing pressure on the Belgian pay-as-you-go social security and pension system.

Two successive purple governments were able to maintain a sound budget while simultaneously reducing the country’s high public debt by courtesy of lower EU interest rates and single shot budget operations.

Official reports now make it plain that future Belgian governments must reduce the budget deficit to 60% of Gross Domestic Product by 2014, down from an already optimistic forecast of 83% by the end of 2007. A further drop in interest rates being unlikely, and the reservoir of one-off bonuses is running empty, this budgetary target can only be achieved if a buoyant economy continues to pull in tax revenues. Economic growth has been the glue that held together two purple coalitions, so history will need to repeat itself if there’s going to be a third.