Putting the European economy back on track - The case of Belgium

27 March 2012

“The crisis has had an impact on politics. You must be wondering how a country which had a caretaker government for 500 days, where some question its very existence, has already managed to reduce its deficit,” said Belgian Finance Minister Steven Vanackere.

“Crises have always changed the course of EU history. What began in 2008 as a banking crisis soon became a financial, then an economic, and finally a sovereign debt crisis,” Vanackere said.

“The crisis was driven by a lack of confidence. The euro zone was under attack from financial markets. Saving Greece was essential, but it wasn’t enough. We need a structural approach, and we need macroeconomic indicators that point to growth,” he said.

“Now we have common economic governance – there’s now recognition that the euro zone was flawed without it,” Vanackere said, arguing that it is “fruitless” to attempt to address challenging economic problems without looking at the political side of the coin too.

Wanting to establish a common currency without common economic governance and political union was a “hereditary sin” for which Europe is now paying the price, the Belgian minister argued.

“I think we’ll all be surprised by the strength of the EU’s new economic governance arm. Its strength had a direct influence on drafting Belgium’s budget,” Vanackere said, describing the EU’s new power as “a welcome step”.

In just five years, Belgium’s share of world exports has fallen by 15-16%. A similar fate befell most eurozone countries, but it poses a particular challenge for an open economy like Belgium’s, the minister explained.

Belgium must boost growth: but not with more spending. “There’s no money for big investment projects in a modest-sized country like ours,” Vanackere argued.

Instead, the government is seeking to benefit from a multiplier effect by eliminating “everything that’s a drag on growth,” he said.

“Clear the obstacles to business growth,” he argued, starting by making sure that salaries are similar to those available in the countries neighbouring Belgium.

“We need to simplify our tax system, which is far too complex. The nominal rate of corporate tax is far too high, but it’s very deductible. It’s extremely complicated,” Vanackere admitted.

“We need to incentivise innovation,” the minister declared, identifying a crucial role for the EU’s ‘Europe 2020’ strategy in this regard.

“We’re forgetting the crucial 28th actor here – the EU itself, which can play a key role in boosting growth, for example by boosting free trade,” he argued.

“I’m not saying we should forget about perfecting the Single Market, but its growth potential has its limits. Let’s look beyond Europe,” Vanackere urged, warning against the danger of unfair trade practices triggering a protectionist spiral.