Belgian interest rises above 5.50%

By Wednesday morning the rate that Belgium had to pay to borrow money for a ten-year period had risen to 5.13%. By the afternoon the spread - the difference between the Belgian borrowing rate and what Germany has to pay - had risen above 340 base points.

The political stalemate has heightened concerns about Belgium's ability to repay its debts, but there are other factors too.

On Tuesday Belgium's Debt Agency insisted that the political deadlock was not the main reason for the hike. A lack of confidence in the Eurozone as a whole is said to be an even greater factor.

Peter De Keyzer, chief economist at BNP Paribas Fortis, told VRT News: "The political stalemate is not helping the situation, but the causes for the rise lie deeper."

"Like many other Eurozone countries Belgium has waited too long to act and take structural measures to reduce its state debt and reform the labour market, the pensions system and the civil service."

"This wasn't a priority during the past decade because many countries posted a balanced budget and most countries were able to borrow at the same rate as Germany. They obtained funding at the same rates as Germany, but failed to behave like Germany."

There were no problems until the financial crisis in 2008 when a gap emerged between German interest rates and interest rates in other Eurozone countries.

The economist also underlines that Germany isn't really minded to continue to buy up government bonds from debtor countries because then there is no pressure on these nations to reform.

Peter De Keyzer doesn't believe that a 5% or 6% interest rate for Belgium will has disastrous consequences like in southern Europe. In the worst case Belgium will simply have to save more or introduce greater cuts. However, he does warn of a 'psychological' danger that could lead the markets to drop Belgium because neither Belgian politicians nor those of the Eurozone are able to take important decisions.

In the course of Wednesday Belgium’s long-term interest rate rose sharply passing the 5.5% mark. The interest all Eurozone countries have to pay rose but the rise was most pronounced in Belgium.