S&P’s lowers sovereign credit rating on Belgium

BRUSSELS (AP) — Standard & Poor’s downgraded Belgium’s financial standing Friday, citing the country’s government stalemate and a looming European recession.

Spurred on by the ratings agency’s cut, six leading parties hurriedly resumed talks to agree on a 2012 budget to contain Belgium’s high debt and deficit, two more reasons why the country has come under increasing pressure from financial markets this week.

In a sign that financial contagion is spreading across Europe, the agency cut Belgium’s credit rating from AA+ to AA, a move coming two days after Germany fared surprisingly poorly at a bond auction.

Belgium has been without a permanent government for 530 days, as a series of negotiators has struggled without success to bridge the country’s divide between its French and Dutch speakers.

“In our opinion, protracted political uncertainty remains a risk to its creditworthiness,” the ratings agency said.

Caretaker Prime Minister Yves Leterme said “we really need strong signals now” from the six political parties trying to resolve the 2012 budget. He said the six parties needed a deal “tonight, the coming days — but preferably before we hit the market again” Monday.

After negotiators reached a constitutional deal two month ago giving regions more autonomy, talks are now stuck over how much austerity measures and increased taxes should be part of an $14.8 billion package to keep spending within limits.

“Now the time has really come for parties to take up their responsibility and form a government with full powers,” Leterme said.

In a statement, Standard & Poor’s said Leterme’s caretaker government “lacks a mandate to implement deeper fiscal and structural reforms.”

The country’s yields on long-term bonds are closing in on 6 percent — getting closer to the 7 percent financial danger zone that has pushed other European nations into international bailouts.

“If we have to go to the markets next week to refinance our debt, the downgrading could make sure that we have to pay an even higher price,” Leterme said on VTM network.

Leterme aims to get the budget deficit down to 2.8 percent of gross domestic product in 2012, but the European Union is far from convinced, forecasting a wider shortfall of 4.6 percent for the country. It is also forecasting that Belgium’s debt-to-GDP ratio will break through the 100 percent barrier in 2013 without big budget reforms.

The record-long negotiations since the June 13, 2010, election have been hobbled by fundamental differences over Belgium’s future. Some pundits have predicted the split of the kingdom of 6.5 million Dutch-speakers in Flanders and 4.5 million French-speakers in Wallonia.

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