Belgium Teetering on the Brink Yet Again as Government Resigns over Banking Crisis

On Friday (19 December) Prime Minister Yves Leterme offered King Albert II the resignation of the entire Belgian government over the administration's handling of the Fortis bank bail-out. The resignation came after allegations from a top judge that aides from Leterme's office had attempted to pressure judges not to interfere in the break-up of Belgian-Dutch bank Fortis, one of the first European casualties of the global economic crisis. Fortis's minority shareholders have taken the government to court over the intended sale of the bank's assets to French bank BNP Paribas (see Belgium: 18 December 2008: Belgian Government Pledges Appeal over Court Ban on Fortis Deal). Although the sale has been suspended on order of the court for 65 days, the allegations that the government ignored the rule of law has created a whirl of controversy and scandal, making Leterme's position untenable.

Fortis: The Beginning of the End

The Fortis group was partially nationalised by the Belgian, Dutch, and Luxembourg governments in late September with an injection of 12.2 billion euro (US$17.1 billion), while a further 11.2 billion euro was provided to the company at the start of December in a bid to calm investor fears. Last week Belgian courts found in favour of 2,200 minority shareholders who demanded increased consultation over the government's plan to fully nationalise the bank by buying out the remaining 51% stake in the company for 4.7 billion euro. The government was then planning on restructuring Fortis, which would have included the sale of a 75% stake to France's BNP Paribas. The government has become extremely keen to save Fortis from collapse, for two reasons. From an economic perspective, although nationalisation was essential to keep Fortis operational, the government had to find a way to recoup its losses and minimise taxpayers' exposure to the bank. Meanwhile, on a political level, the government was forced into a corner since it had to appear to be in charge of the financial crisis; however, its plan for Fortis was not favourable to the minority shareholders. As a result, the court's decision to freeze the deal has meant that the government has lost face among its citizens, who were already questioning its effectiveness.

A Plethora of Unsatisfactory Options

King Albert II spent the weekend (20-21 December) meeting with the country's political elite in an attempt to decide the next step for Belgium's troubled political system. Following an election in June 2007, the country has struggled to find political unity over the contentious issue of state reform, which has highlighted the deep divisions between the Dutch- and French-speaking regions of the country. Only in March 2008 was Leterme, originating from the Christian, Democratic and Flemish Party (CD&V), able to forge some degree of unity and pull together a government; however, his efforts appear to have been frustrated by the cry of scandal. King Albert II refused to accept Leterme's resignation in July this year after the prime minister failed to reach a compromise with the Flemish community over demands for increased regional autonomy. However, this time the King did not have a choice, and the prime minister himself publicly ruled out a return to government yesterday, even as a minister. The King, therefore, has two options available:

• A Transitional Government: The King could appoint a new prime minister to oversee the creation of a transitional government, populated by representatives of the outgoing five-party ruling coalition. This transitional government would run the country until regional elections in June 2009, which could potentially be coupled with a fresh general election. According to local media, potential replacements for Leterme include the head of the CD&V, Marianne Thyssen; Lower House of Parliament Speaker Herman Van Rompuy; Deputy Prime Minister Didier Reynders; and former prime ministers Jean-Luc Dehaene or Guy Verhofstadt. The transitional government would have the power to pass the 2009 budget and would be charged with resolving the mess that has become the nationalisation of Fortis.
• New Elections: This option is unlikely since all of the country's ruling political factions appear to be united against a new election. If a fresh election were called at the present time, the country's response to the global financial crisis would be severely compromised as it would be unable to pass the 2009 budget and lack a coherent policy or direction. At the same time, the outgoing government is fully aware that it would be likely to suffer at the polls since the electorate would not look kindly on a government that has collapsed at such a turbulent time.

Outlook and Implications