A SUPPLEMENT TO EUROMONEY - MAY 1996
Belgium's leap of faith
There is a sense of now-or-never in Brussels. The Belgian government believes that without fundamental reforms its small economy will not operate effectively in a Europe which has introduced a single currency and thrown open regional marketplaces to foreign competition. Limited ambitions which were realistic 10 years ago now look inadequate against the economic and market changes Belgium is about to face.
Belgium's economy and local capital markets stand to lose substantially from Emu unless they change now. The Belgian government, led by prime minister Jean-Luc Dehaene, has realized that, if Belgium does not act quickly, its economy could fall so far out of step with the rest of Europe that Belgium will not be able to join European monetary union. If this happens the Brussels stock exchange would lose business so fast that it might not survive. Even the country's bond market could collapse in the face of speculation against the Belgian franc.
But the present Belgian government is noteworthy for its apolitical and single-minded approach to monetary union. After eight years in the job, finance minister Philippe Maystadt is moving fast. A commission of strategists - the Maystadt Commission - is working on further market deregulation; the finance ministry has introduced innovations such as the X-N tax exemption scheme; and privatization is progressing more quickly. The Belgian government is also trying to lure investors with the Belgian franc's rock-steady exchange rate against the Deutschmark, low inflation, better management of the country's debt and more efficient financial markets.
Behind all this is a profound belief that economic and monetary union in Europe is the only way to greater economic stability for a small country that sees itself at the heart of Europe. In turn, secure finances will enable the government to seal the new political and economic arrangement for the two main national groups, the French-speaking Walloons and the Dutch-speaking Flemish community.
There is no time to lose on any count: "If Emu doesn't start in 1999, we'll have to wait another 20 years before we're back in the same situation," says Alfons Verplaetse, governor of the Belgian National Bank.
This survey looks at the likelihood of Belgium being allowed into monetary union, and the implications for the country's banks and capital markets.
Belgium needs Emu: the political solution to its economic problems
Will Belgium turn its economy around in time for European monetary union? Without Emu, the Belgian government fears that Belgian franc and government debt issues will be punished by the markets.
Philippe Maystadt: Washington bound?
After eight years as Belgium's finance minister, Philippe Maystadt is said to be the leading candidate to replace Michel Camdessus as director of the International Monetary Fund in Washington. Those who know him well think he may stay to win Belgium a place in European monetary union.
Belgium's banks: Survival of the biggest
Belgium's economic plans rest on successful entry into European monetary union. It's well on its way - but it doesn't meet Maastricht's debt criteria.
