Belgium is burdened with mounting problems and a collapsing government is exacerbating the situation. If a government isn’t established soon, the exchange traded fund (ETF) could sink with the country’s economy.
Belgian Prime Minister Yves Leterme tendered his government’s resignation to King Albert after the Flemish liberal party pulled out of its five-month old coalition, but the monarch has yet to decide upon accepting control, according to The New York Times. The palace has stated that “in the current circumstances, a political crisis would be inopportune and would seriously damage both the economic and social well-being of the citizens and the role of Belgium in Europe.”
- Belgium is coming off its worst post-war recession, with the Central Bank estimating growth to be only 1% for the year, reports Ben Deighton for Reuters.
- The rising unemployment rate is also an issue, and the government may have to step in to mitigate the situation.
- Economist Steven Vanneste at BNP Paribas Fortis believes the government needs to start fixing the pension issue that require some policy changes.
- Economists believe that political strife in the linguistically-divided country as it recovers would impede the government’s prospects of reducing the budget deficit. The Belgian budget deficit is calculated to be 4.8% of GDP this year, increasing the national debt above 100% of GDP. According to ING economist Philippe Ledent, the sovereign bond spreads could increase by as much as 0.40%.
- Negotiations between employers and unions could be undermined since the government would have acted as a mediator. Social instability could result and hamper growth.
- Belgium would have also taken the role of EU presidency, which allows member states to conduct policy, but the role would be undermined if Belgium has no government or a caretaker government.
If you’re holding Belgium, watch that trend line. The ETF is still 2.8% above the 200-day moving average; if it breaks that, it will be a sell signal.
- iShares MSCI Belgium (EWK)
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Max Chen contributed to this article.