Belgian political parties negotiating a coalition agreement reached a deal on the 2012 budget on Saturday, clearing the last major obstacle to the formation of a new government more than 18 months after elections were held. The deal came hours after ratings agency Standard & Poor's downgraded Belgium's credit to AA from AA+, piling pressure on the country to act.
S&P said difficulties in Belgium's banking system and the government's inability to respond to economic pressures had contributed to the downgrade. After the downgrade late on Friday, Belgium's caretaker prime minister, Yves Leterme, urged budget negotiators to reach a deal before markets open on Monday, fearing that the country's borrowing costs could be pushed beyond sustainable levels.
"The formateur and the negotiators reached a major milestone in the formation of the Government," the negotiators said in a statement, referring to the Belgian term for the person responsible for negotiating the coalition, Elio di Rupo, who is likely to be the next prime minister. "They have developed budgets for 2012, 2013 and 2014 and reached an agreement on long-term structural reforms in employment and pensions," the statement said.
The negotiators said that under the deal, Belgium would reduce its budget deficit to 2.8 percent of gross domestic product in 2012 from 3.6 percent expected this year and balance its books in 2015. "The long-term structural reforms will help to preserve our social model, to face the challenge of extending the life span and boost our economy," they said in the statement. Belgium's King Albert welcomed the budget deal and called on Di Rupo to take rapid steps to form a new cabinet.
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