Your country needs you to buy our bonds, says Belgium's prime minister

Eurozone crisis has left desperate Belgian government casting round for bond purchasers

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  • Phillip Inman, economics correspondent
  • guardian.co.uk, Friday 25 November 2011 16.40 GMT
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  Belgium's prime minister Yves Leterme has been prompted by the eurozone crisis to call on the public to buy bonds. Photograph: Virginia Mayo/AP

  Belgium's prime minister Yves Leterme has called on savers to buy their country's debt. It's something usually left to the finance ministry, which makes a low key request every three months when there is a bond sale targeted at individuals.

  So there was an air of desperation this week when Leterme felt compelled to become marketing director for the exchequer, making the call for public funds from his seat in parliament and later in TV interviews.

  He said: "Given the difficulties on the financial markets, we want to call more on the savings capacity of Belgians to finance the debt."

  Belgium is offering savers 4% interest on a five-year public bond. That compares with a yield of around 5% demanded by institutional investors on Thursday for a 5-year benchmark bond.

  More importantly, the 10-year bond yield is nearing the all-important 6% threshold, which, in most cases, is the point when private investors turn away.

  In this context a 4% bond is a cheap way for the government to borrow. But compared to Britain's 2.3%, it is extremely expensive.

  Is Belgium in trouble? As the Churchill dog says in TV ads for the insurer, "ohh yess".

  Until recently Leterme could avoid making pleas for public funds. Compared to other high debt nations, Belgium could point to a strong record of paying down debts. The government had a positive primary balance between 1993 and 2007, during which time Belgium's debt to GDP level fell from 133% to just over 84%.

  This situation went into reverse in 2009 when the banking crash pushed the country's deficit and debt levels to 6% and 96.2% of GDP respectively. In 2010, debt to GDP jumped to 97%

  Belgium was expected to grow at 2.5% this year and limit its budget deficit to 3.0% this year and next.

  Now that looks pie in the sky.

  With exports and imports approximately equal to GDP, Belgium depends heavily on world trade. Now the world economy is heading for a sharp slowdown, the lack of a big internal market is a problem.

  Leterme is the caretaker prime minister of a caretaker government who has added to the general sense of instability by declaring he wants to step down at the earliest possible moment to pursue an alternative career.

  Leterme has accepted a job at the Paris-based thinktank, the OECD, with the proviso that a new government needs to be in the saddle before he departs.

  Zach Witton of Moody's Analytics, says that without a government to make firm commitments on deficit reduction, investors think Belgium too big a risk. He argues that investors are concerned about the huge amount of re-financing the country faces in the coming years.

  Belgians are big savers and could step in to help. But historically they are like the British and prefer foreign assets. So while savings almost equal the deficit, there is little appetite for a rescue.

  With Spain considering a request for a euro bailout, Ireland and Portugal seeking a debt write-off, the last thing Merkel and Sarkozy need is a bust Belgium, but that might be just what they get.