As Germany begins to argue that it should not have to support the likes of Greece, and that individual European nations should be solely liable for their economic woes – rather than the European Union as a whole – EU leaders seem to be ignoring a brewing catastrophe at the core of the Eurozone itself.
Belgium, the political seat of the EU, appears to be the next sovereign debt victim. As the symbolic capital of the EU bloc, a debt crisis in this small country would destroy the euro and the EU’s legitimacy.
It has been the “PIGS” – Portugal, Ireland, Greece, and Spain – who have headlined the continent’s debt concerns, rocking world markets as each has announced that they may be unable to repay their sovereign debt and need significant economic assistance to pull their governments from bankruptcy.
A new acronym may soon be required to include Belgium. The country’s debt is about equal to its GDP – an economy bigger than Greece, Ireland and Portugal combined. More concerning is the country’s poor economic growth, significant unemployment (8.5%), and unstable political situation. In each PIGS case to date, an aggravated economic and political climate helped manifest crisis. Belgium has all these necessary ingredients.
Belgium has been without a central government now for over 18 months, divided over the socio-economic rivalries of the Flemish and Walloon regions. The destabilized political state forced the ratings agency Standard & Poor’s to warn earlier this year that if Belgium did not bolt down its government within six months, it would be forced to downgrade the country’s credit outlook. Last week, those six months expired.
A credit downgrade would be like a life guard yelling “shark!” at a crowded beach: everyone would chaotically blitz for cover.
Belgium’s downgrade would send world markets spiraling, and would be a crushing blow to the Eurozone. A Belgium requiring international aid similar to the austerity package which is being prepared for Greece would send a symbolic message that the economic core of Europe is rotten. Until now, markets have only had to deal with periphery countries in Europe going broke (Greece, Portugal, Ireland). The brewing economic calamity in Belgium would change the nature of this wreck from “fender-bender” to “totaled,” as the engine itself would be compromised.
To be clear, Belgium is no Greece, which holds debt at 143% of its GDP. But Belgian debt is only 3% from Portugal’s own debt, at 102%. Portugal – a fringe state in the EU with marginal political and economic clout – has helped keep world markets jittery with its problems. Imagine what damage Belgium could do; with a juiced-up economy and the political headquarters of the EU and NATO, markets would truly fall into a double-dip recession. The euro, which has been criticized and expiration-dated by alarmist pundits during the Greek debt crises, would surely not survive an economic shock to one of its key internal members.
World markets have been temperamental to even the slightest sign of trouble in the Eurozone. As Germany argues whether this crises is in fact a problem for the entire bloc – even for the entire world – and again sends ripples through the global economy, it should make sure its own back yard is safe.
Otherwise we’ll see an entire continent go broke.
Photo Credit: PIAZZA del POPOLO