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European sovereign debt: Tot ziens België, adieu Belgique?

Belgium’s strained communal relations and ramshackle politics mean its financial problems could be fatal for the nation.

Never mind the break-up of the eurozone, Europe could witness the dissolution of a nation state before this financial crisis is done. Despite the best efforts of Greece, Ireland, Portugal and Spain the poster child of Europe’s sovereign debt crisis might well become Belgium.

At first glance Belgium’s plight does not seem too worrying. It has a current account surplus, low household debt and a high savings rate. Its budget deficit of 4.6% of GDP is much lower than France’s, never mind Portugal or Greece, and unlike Spain and Ireland it is not suffering from a real estate bust. Its national debt of €400 billion is less than half the loss racked up by AIG in 2007-08.

Yet Belgium’s future is gloomy; so unpromising that Bedlam Asset Management thinks the country is the surprise candidate for sovereign default by the end of 2012. Its debt-to-GDP ratio is nearly 100% and only Italy, Greece and Ireland have a higher ratio in the EU.

Belgium is a microcosm of the eurozone’s problems: a wealthy north subsidizing an impoverished south; distinct cultures with little in common co-existing uneasily; and, crucially, a country paralysed by a political vacuum.

Belgium is made up of three regions: Flemish (Dutch)-speaking Flanders in the north; French-speaking Wallonia in the south, and in the centre, Brussels, the bilingual unofficial capital of the EU.

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