Belgian Stability Programme

2011-2014

The macroeconomic challenges

The Belgian economic fundamentals are sound.

· Belgium recorded GDP growth averaging 1.6 % over the period 2000-2010, compared to 1.4 % in the euro area. The growth prospects for 2011 are also tending to exceed the average for the euro area (2 % versus 1.7 %).

· In 2010, unemployment reached 8.4 % in Belgium, a rate which was below the average for the euro area (10 %). In 2011, unemployment should decline further to 8.3%.

· In terms of external performance, Belgium does fairly well in the European context. After declining more or less to equilibrium in 2008, owing to the combined effects of the strength of domestic demand and losses on the terms of trade due to higher commodity prices, the balance of current transactions in Belgium became positive again in 2009 and is forecast to remain so in 2011. Regarding net external assets, Belgium has a net balance in excess of 50 % of GDP, well above the European average.

· As regards private sector debt, no imbalance is evident:

- the private savings ratio (in % of disposable income) in Belgium stood at 17.2 % in 2010 ;

- in 2010, the household debt ratio in Belgium was close to 54 % of GDP and the corporate debt ratio was in the region of 43 % of GDP⁽¹⁾.

Despite these sound fundamentals, the Belgian government is aware of certain weaknesses in the Belgian economy, particularly in relation to the labour market, the costs of ageing (see chapter 7 on the sustainability of public finances) and competitiveness.

In that context, the Belgian government is committed to making a consistent response in the coming 12 months to the 4 priorities put forward by the Heads of State and Government.

Moreover, the measures taken recently by the government already offer a partial response to those priorities.

Boosting competitiveness and employment

On 11 February the government concluded an agreement in principle on a set of measures concerning the labour market in the biennial wage negotiations in the private sector. On 25 February the detailed texts of that agreement were presented to the Council of Ministers for a first reading. The draft law is currently before Parliament pending approval.

· The government set a wage norm for the private sector as a whole which limits real wage growth to 0.3 % over the period 2011-2012. Moreover, the wage increase will not be granted until 2012.

· Belgium has an employment protection system which distinguishes between whitecollar and blue-collar workers. A start has been made on eliminating the differences in the rules on employment law between blue-collar and white-collar workers. Various measures will be phased in during 2011: redundant blue-collar workers will receive redundancy pay; white-collar workers can also be temporarily laid off by their employer if there is no work. And from 2012 the periods of notice to be given to blue-collar workers will be extended, while those applicable to highly paid whitecollar workers will be reduced. In addition, a limited tax exemption will take effect in the case of remuneration and/or compensation in connection with compulsory and/or voluntary redundancy from 1 January 2012. That exemption will be up to € 600 in 2012 and 2013 and up to €1200 in 2014⁽²⁾.

· Workers being paid the minimum wage will receive a net increase of € 120 per annum via a tax credit amounting to a fixed percentage of the actual reduction in personal social security contributions. In order to avoid “ tax spikes”, this reduction will be gradually tapered off for workers receiving slightly more than the minimum wage. The rule will apply from 1 April. This measure alleviates the benefit traps and thus facilitates the return to the labour market.

· The Generation Pact will be assessed before October 2011. At present, men who have worked for 37 years and women who have worked for 33 years can retire on a prepension. If the employment rate of the over 50s does not increase 1.5 times as fast as in the EU, the law provides that the eligibility conditions for retiring on a pre-pension will be tightened up and increased to 40 years. Conversely if the employment rate of the over 50s does increase 1.5 times as fast as in the EU, the eligibility condition will be increased to 38 years for men and 35 years for women from 2012, and 38 years from 2014.

· The system of temporary lay-offs for white-collar workers has been made permanent. In addition, the social partners have been asked to devise a mechanism whereby firms which have made excessive use of this system have to carry the responsibility.

Under the budget, an action plan was approved which aims to encourage the voluntary return to work of disabled persons:

· For those going back to work part time, levies on their benefits will be adjusted to make it easier for them to combine benefits and a return to work.

· The procedures for authorising a return to work will be simplified by abolishing prior authorisation and replacing it with retrospective authorisation.

· The financial incentive to encourage disabled persons to attend training will be stepped up.

· The quality and consistency of the medical assessment of incapacity for work will also be improved.

Competition & Energy Market

· In connection with the transposition of the third Energy Directive, to be approved at the Council of Ministers on 15 April, the functioning of the energy market will be improved. Changes to the indexation formulas for gas and electricity suppliers will be subject to ex-ante control by the CREG, while price changes resulting from the formula for indexation, which will in future be permitted only every three months, will be subject to ex-post control. These measures should curb the volatility of energy prices.

· In order to cope with higher inflation, the federal government decided, in the 2011 budget, to confer additional powers on the Price Observatory to monitor the movement in prices of certain products. In that connection, the competition authority may ask the Price Observatory to conduct surveys and may use the Observatory’s analyses for the purpose of its surveys on infringements of competition law.

Ensuring the sustainability of public finances

See above (point 6).

Strengthening financial stability

In the context of the financial crisis which spread to all financial centres and the global economy, the government wanted to reform financial supervision while also providing for legal instruments to reduce the global risk of the financial sector. 

Reform of supervision

The legislature wanted to learn the lessons of the financial crisis and develop the Belgian financial supervision structure in the same direction as the reforms implemented in a number of European countries.

Thus, the legislature opted for the “Twin Peaks” supervision model. Since 1 April the supervision architecture of the financial sector has operated as follows:

· The National Bank of Belgium is responsible for maintaining the macroeconomic and microeconomic stability of the financial system. From now on, the NBB is therefore in charge of the individual prudential supervision of the financial players. It thus ensures that the financial institutions subject to its supervision are financially sound, e.g. by setting solvency, liquidity and profitability requirements for those institutions. Financial undertakings which come under the prudential supervision of the NBB will be approved by the NBB.

· The FSMA (Financial Services and Markets Authority) – formerly the CBFA (Banking, Finance and Insurance Commission) – continues to perform its traditional task of safeguarding the smooth functioning, transparency and integrity of the financial markets, and watching out for the illicit offering of financial products and services. It will also check on compliance with the code of conduct applicable to financial intermediaries in order to ensure that customers receive honest, fair and professional treatment.

The Committee for Systemic Risks and Systemic Financial Institutions, which has been responsible for supervising “systemic” institutions since the last quarter of 2010, is therefore giving way to a fundamental reform of the financial supervision architecture in Belgium.

This model presents a number of advantages, notably the avoidance of conflicts of interest between microprudential supervision and consumer protection. More fundamentally, it means that micro- and macro-prudential supervision can be brought together to combine all the relevant information for determining systemic risks in a single institution, the NBB. This institution is also the lender of last resort.

The FSMA – the former CBFA – will be given new powers concerning consumer protection and financial training.

Strengthening the financial regulation and reinforced legal framework

Apart from these large-scale reforms the government has set up a new legal framework – in accordance with the IMF’s recommendations - enabling it to intervene in the event of a serious financial crisis threatening financial stability. In future, that framework will enable the government to effect the assignment, sale or contribution of financial undertakings concerning assets, liabilities or various branches of activity, or securities or shares issued by financial institutions, whether or not in accordance with voting rights. Also, when the State wants to make use of the powers to order the assignment of assets or securities, it will have to refer the matter to the court of first instance for the latter to verify both the legality of the act of assignment and the fairness of the proposed payment. Moreover, there is now provision for sanctions to apply in the event of the circulation of information or rumours which could give false or misleading impressions about the situation of a credit institution, insurance company or clearing house, such as to damage its financial stability.

The government has also transposed the directive on remuneration policies in the financial sector, intended to reduce the risks taken by those institutions. In particular, the new regulations provide for the creation of a remuneration committee in accordance with the European requirements on the subject, and stipulate that the payment of the variable element of remuneration must not exceed 30 % in the first year.

   (1) Belgium is home to many subsidiaries of multinationals, which even base their general financial headquarters
    there for the rest of Europe. That therefore generates large flows of finance, capital and loans between Belgium
    and the rest of the world. To gain a proper understanding of the economic reality it is vital to take that into account.
    Thus, inter-company loans are a less important factor for assessing a country’s macroeconomic stability. That is why
    the analysis mentioned above is based on the consolidated series of statistics published by Eurostat. Since the
    non-consolidated series is available for a larger number of Member States it is often used for the purpose of
    international comparisons. Analyses based on nonconsolidated data overestimate the macroeconomic risk associated
    with the gross debt ratio of Belgian firms. In Belgium, the difference between the consolidated and non-consolidated
    data is in fact over 100 % of GDP, whereas the euro area average is 16 %.

   (2) 2011 index