The problem in Belgium is several-fold. Not least the fact that the country has pulled off the impressive trick of simultaneously not having a government, but having massive levels of government debt.

In other words, the government it does not have is in big trouble.

But before you start rattling off jokes about famous people from Belgium, it maybe be worth taking a slightly closer look.

Belgium has hit the headlines because the cost has soared for insuring Belgian government bonds against default. At the end of last year the Belgian government’s debt was 97.6 per cent of GDP, meaning that of the Eurozone’s troubled economies, it is in the bronze medal position for size of debt, behind Italy and Greece.

The good, and somewhat surprising, news is that its budget deficit is improving. Last year its deficit was 5.6 per cent of GDP. This year it seems to be on course for around 4.8 per cent.

This is surprising for two reasons. Firstly, Belgium doesn’t have a government, not as such. Secondly, the reason why she has no government is that the country is pretty much split down the middle between those who do and don’t want to see austerity.

Belgium’s problems go beyond that, however.

Exports are important to Belgium, very important, making up 80 per cent of GDP. But in recent years she has seen a significant loss of competitiveness. According to a report from Capital Economics earlier in the year: “Its real effective exchange rate has risen more sharply than those of most other economies [that’s Eurozone] with the exception of Italy.”

Belgian banks are also exceptionally vulnerable. The government bailed out the banks Dexia, Fortis and KBC during the banking crisis, but ever since then the banks have limped forward and still seem to have weak balance sheets.
Belgium’s banks also seem to have heavy exposure to the so-called ‘PIIGS’ and Eastern Europe.

At the end of 2008, OECD figures suggested that Belgian house prices were among the most overvalued in Europe – for more, see yesterday’s piece: Portugal and Ireland – debts, wages and house prices: how do they really stand?

But Belgium scores in one important respect. It seems the Belgian people are a frugal lot, and household debt in Belgium is quite modest. In fact, Belgium and Italy are the two countries with the lowest level of household debt.

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