1 mei 2008

Free market reform in Belgium (Stephan Wyckaert)

Writing on reform in Belgium today is an even harder task for me than it was in 2004, when I wrote my first entry for the Stockholm Network booklet "The State of the Union". The evolution of market reform is largely dependent on the reform of the Belgian state itself. Belgians of the North and the South are indeed seeking a new identity, a new structure to organise their coexistence. The result of this quest will not only shape our political sphere, but also determine the evolution of market reforms. In 2004, I began my article by reminding the reader that Belgium is characterised by an often uneasy equilibrium between the two main linguistic groups – Dutch and French – and a number of diverse regions with distinct cultural legacies. Within this amalgamated system, economic and political actors often fall short of mutual concord and understanding.

After the regional elections of 2004, government coalitions in Flanders and Wallonia were composed differently at the level of the Federation. Political rivalry between the French-speaking socialist and liberal parties, both members of the federal government but rivals in the French-speaking region, exacerbated rising tensions; on the Flemish side there was growing support for the Christian Democrat/Flemish nationalist cartel CD&V/NV-A, which pledged far reaching reform of the state.

On 13 December 2006, Belgium’s French-speaking public television network created a stir with a surprise 90 minute broadcast that began with a news flash that Flanders had declared independence and that the Belgian state was breaking apart. Although the broadcast was heavily criticised, it set the tone for an election campaign dominated by comminatory issues, and it became ever more obvious that politicians on both sides of the linguistic border were entrenching themselves behind the – true or false – interests of their own community. When, finally, the parliamentary elections took place on June 10th, it soon became obvious that the winners would have a hard time finding partners prepared to enter into a coalition. The result was the longest political crisis in Belgian history: with the formation talks lasting for more than 5 months.

These talks were punctuated by unreasonable demands and acts from both (Flemish and Walloon) sides, as if each side feared losing face if they yielded even slightly to the other. When the Parliament finally confirmed the formation of an interim Government (on 23 December 2007), it had been 196 days since the Belgian people had voted out the previous coalition. At the time of writing, negotiations are still under way to reach a definitive coalition agreement. Indeed, according to plan, the interim Prime Minister Guy Verhofstadt would lay down his office on 20 March 2008 to be succeeded by Yves Leterme, and by that time a ‘Council of Elders’ would have to set the outlines for state reform.

Why is it so difficult for people in Belgium to agree when it comes to matters of state? Certain media organisations present my country as a place where a rich, Dutch-speaking majority (living in Flanders) has grown tired of their poor, French-speaking countrymen and want to separate from them and to continue as an independent nation. All too often, Flemings are painted as a right-wing and separatist people who hate French-speakers. But in reality the Fleming is neither far-right, nor separatist, nor does he hate French-speakers. It may be true that, historically, Belgium was conceived by its founding fathers as a French-speaking country and was modelled after the July monarchy in France. During the nineteenth and early twentieth century, Flemings struggled hard for equality. The scars left by this struggle have mostly healed and, in general, members of the two major language groups get along well. Many people in Flemish cities such as Ghent or Bruges will not lose sleep over what happens over the linguistic border and the same is true for inhabitants of, for example, Mons or Namur in Wallonia.

It can, however, not be denied that certain differences clearly exist: Flemings tend to rely less on the welfare state, whereas Walloons expect more from the State and from public authorities. Many people in the South fear abandonment by the North. A majority of Flemings, however, remain convinced that splitting up the country would not be a good idea, even if, as things stand, some drastic changes need to be made to the division of powers between the Federal State and the federated entities. For many Walloons, such changes are difficult to accept: shifting powers from one level to another is a step in the direction of confederalism, which they see as the last phase before a Flemish declaration of independence. The possible economic consequences of such a split – to a large extent, the economy of the South is dependant on that of the North – are seen as far too gruesome.

The political class in the North and South pursue their own political agendas, a fact aided by the absence of national political parties, the absence of a federal constituency and the lack of a national media (an ever-decreasing number of Flemings watch French-speaking TV or read newspapers in French, and the same is true in the other direction). Several political parties are capitalising on this situation and act as if they were the only true defenders of their language group’s interest: the upshot is mutual distrust among politicians and the resulting difficulty in reaching consensus on important issues. Furthermore, the cohesion within the interim government currently running the country’s affairs is weak: to quote just one example, the Walloon liberals of the Mouvement Réformateur are very unhappy that they were forced into a coalition with their archrivals, the Parti Socialiste, which is more or less supported by the French Christian democrats who depend on the Parti Socialiste in the Walloon regional government. On the Flemish side, many questions are asked about the cohesion within the Flemish cartel of Christian Democrats and Flemish Nationalists, where the former often tend to be more moderate about state reform than the latter.

The outcome of government negotiations will be instructive in the economic direction the country will take. One such problem is the budget. According to the declarations of interim premier Verhofstadt when he took up office once more, the national purse is empty and there is insufficient money for new initiatives. Therefore, the first major economic problem for the government (albeit an interim government) was to decide on the budget. For 2008, the Federal budget has a deficit of roughly €3.5 billion, and the interim government hopes the federated entities (the Flemish and Walloon regions) will make a financial contribution to the Federal budget by injecting several hundreds of millions of Euros. For some time, the Flemish minister-president Kris Peeters was reluctant to do so. On March 2 2008, the budget talks were suspended to allow the ‘Council of Elders’ (where the proposals for state reform are debated) to finish talks about a first set of power shifts, which also has to open the way to a definitive coalition agreement. And thus it becomes clear how much any sort of reform in any sector is dependent on increased political stability. When an agreement was reached on a first – limited – set of measures for state reform (not without criticism from N-VA, which declared they would abstain from the vote), it was finally possible to conclude the budget talks.

The budget includes €340 million for new measures, such as a 2% rise in the lowest pensions, an income guarantee for elderly people and a rise in the income ceiling for retired people (so that, even if they are entitled to a pension, they can still earn an income from labour). The budget has been criticised because the interim government is unlikely to have reserved enough means to finance the cost of an ever-ageing population. Measures introduced in the past, such as the interest deduction for risk capital, better known as the notional interest deduction, will be maintained.The concept of this notional interest deduction was launched in July 2004 by the Finance Minister, Didier Reynders. The central idea behind the incentive is to let companies, which use their own equity for investments, deduct a (fictitious) interest from their tax base. Among other initiatives to look for additional means, a yearly tax of roughly €250 million will be imposed on the electricity production sector.

As I conclude this article, it is still evident that power games which are said to be inspired by the ‘interest of the community’ or the ‘common good’ (but seem to be more instructed by the self-interest of politicians) are still going on. Which government will rule Belgium after the summer remains unknown. Depending on the combination of parties that will form the coalition after that date, we will know whether the economic programme will be mainly market-oriented or interventionist. However, current developments and knowledge of the political context are not inspiring much optimism that market-oriented forces will prevail.

Prof. dr. Stephan Wyckaert teaches law at the Université Libre de Bruxelles, is editor-in-chief of the Chroniques de Droit Public, and works as a lawyer for Janson-Baugniet in Brussels.

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