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Could the euro crisis save Belgium?

It may be hard to imagine a silver lining in S&P’s decision to downgrade Belgium’s credit rating from AA+ to AA, but the move may have had the unintended consequence of pressuring Belgian leaders to finally get around to forming a government. The country hasn’t had a permanent government since April 2010 — and hasn’t ...

It may be hard to imagine a silver lining in S&P’s decision to downgrade Belgium’s credit rating from AA+ to AA, but the move may have had the unintended consequence of pressuring Belgian leaders to finally get around to forming a government. The country hasn’t had a permanent government since April 2010 — and hasn’t really had a stable one in more than four years — but an agreement on a budget deal this week may have paved the way for a more permanent arangement, with the king calling on chief negotiator Elio di Rupo to form a coalition. It seems like the downgrade may have finally lit a fire under the country’s divided linquistic factions:

Elections were won by Flemish nationalists who demanded wide-ranging reform of the federal government, including more autonomy for its regions. Wallonia, whose economy has lagged behind that of Flanders, has resisted devolution amid fears that will result in lower redistributive payments.

Failure to resolve the conflict has thus far prevented the emergence of a new government, leaving Mr Leterme and his team as a limited-powers “caretaker” administration.

The 580-day political squabble was one of the reasons given by Standard & Poor’s on Friday when it downgraded Belgium’s long-term debt outlook, from double A plus to double A.

The downgrade, after several weeks of Belgium bond yields rising steadily as investors fretted about its creditworthiness, revived stalled negotiations between leaders of the main political parties looking to form the next coalition.

It would certainly be good for Belgium to have a government at a time like this. But like the removal from power of Silvio Berlusconi and George Papandreou, this could also be seen as an example of an international financial entity — in this case S&P rather than the European Central Bank — forcing the hand of a sovereign government when the democratic process failed to do so. We’ll see how long this newest arrangement can last.

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