Belgium opts for short-term government fix to coronavirus crisis

Belgians are facing the worst health emergency of modern times but politicians still can’t agree to form a permanent government to deal with it.

Across the country, there are now over 1,000 confirmed cases of coronavirus, and the authorities have closed down schools, bars and restaurants.

This raises particular problems in a country that has struggled to agree on a government since elections in May 2019, and one where the deficit is threatening to balloon out of control. The caretaker government under Prime Minister Sophie Wilmès — a French-speaking liberal — has no majority in parliament, which weakens its credibility and prevents it from throwing everything at the crisis.

The biggest political parties of both sides of the linguistically divided country, from the Flemish-speaking North and the French-speaking South, started negotiating last week over a possible future government, but failed to come up with a long-term fix.

Bart De Wever, party president of the Flemish nationalists, the biggest party in Belgium, confirmed on Saturday that he aimed for “a government for one year, with the only goal of fighting the corona crisis and its economic consequences.”

But talks broke down over the weekend because of a lack of trust between the Flemish nationalists and the French-speaking socialists. Parties also didn’t agree on who should take the lead of this new government.

On Sunday night, political leaders settled on a typical Belgian compromise.

Ten parties, including the three in government, will back a plan to give emergency powers to the caretaker government. That enables Wilmès’ team to take the necessary measures without having to look for support in parliament first. However, the emergency powers are limited to handling the coronavirus crisis, the negotiators stressed.

In Flanders, politicians regretted that not even a pandemic could create a normally functioning government.

“If such a crisis is not enough to force politicians to form a government, then what is? The storm doesn’t get more perfect than this,” said Carl Devos, a professor in political science at the University of Ghent. “The current move only displays the distrust between the different parties.”

Devos also questioned the ability of the minority government to tackle the crisis. “They can provide crisis management. But it’s not clear whether they can tackle the socioeconomic and budgetary consequences. Do they have the democratic legitimacy to draft a new budget or decide on the economic recovery after this crisis?”

Open up the wallets

Belgium’s problem handling the coronavirus crisis is not just political. On the economic side, things don’t look that good either.

The new Belgian set-up immediately facilitated new measures. The Belgian parliament agreed to provide an additional budget of €1 billion to tackle the consequences of coronavirus. The extra money should help both the health sector as well as companies and employees who suffer from the economic impact.

Other European countries are also opening up their purse strings, especially since the European Commission is waiving debt limits and state-aid prohibitions. EU Commissioner Valdis Dombrovskis, who oversees economic policy, said officials needed to prioritize the emergency response over fiscal stimulus.

German Finance Minister Olaf Scholz said last week: “We have the financial strength to deal with this crisis. There is enough money and we will use it.”

But that’s not the case in Belgium, as the budget was already sliding off the rails.

This year’s deficit mounted to 2.77 percent of gross domestic product or €13.5 billion. Those numbers are based on an economic growth of 1.4 percent and don’t take into account the (potentially devastating) economic impact of coronavirus. A Commission official told reporters on Friday that it’s very likely the growth for the EU “will fall below zero this year, and potentially even considerably below zero.”

And yet, Belgium doesn’t have a choice, said Johan Van Overtveldt, the former Belgian finance minister who now chairs the European Parliament’s budget committee.

The economist built his career on fiscal orthodoxy but he acknowledged that these were extraordinary times. “The budgetary considerations are not our first priority at this point,” Van Overtveldt said. “This has the potential to trigger an economic crisis that is beyond that of 2008. The financial crisis triggered uncertainty and fear which led to a crisis in demand. Now, we’re facing a crisis in supply at the same time, as companies need more credit to finance their activities and see their international supply chains disrupted. The combination of a crisis in demand and supply is particularly dangerous.”

Just like Pierre Wunsch, the chief of the National Bank of Belgium, did earlier, he encouraged the government to stimulate the economy to prevent an economic plunge.

“It should be the absolute priority for any European finance minister at this point,” Van Overtveldt said, while at the same time acknowledging that Belgium is not in the ideal situation to launch a form of economic bazooka to counter that downward spiral. “Countries such as Germany and the Netherlands are obviously in a much more comfortable position.”