Standard & Poor's lowered its long-term sovereign credit rating for Belgium on Friday, citing the country's lack of a permanent government and a looming European recession that threatens the country's exports.
In a sign that financial contagion is spreading across Europe, the agency cut Belgium's credit rating from double-A-plus to double-A, a move that sent shocked politicians immediately back into new negotiations Friday night.
Belgium has been without a permanent government for 530 days, as a series of negotiators have struggled without success to bridge the country's divide between French-speakers and Dutch-speakers.
"In our opinion, protracted political uncertainty remains a risk to its creditworthiness," the ratings agency said.
Caretaker Prime Minister Yves Leterme said Friday "we really need strong signals now" from the six political parties trying to resolve the 2012 budget. He said the six parties needed a deal "tonight, the coming days – but preferably before we hit the market again" on Monday.
After negotiators reached a constitutional deal two month ago giving regions more autonomy, talks are now stuck over how to contain Belgium's high debt and deficit.
In a statement, Standard & Poor's said Mr. Leterme's caretaker government "lacks a mandate to implement deeper fiscal and structural reforms."
The country's yields on long-term bonds are closing in on 6 per cent – getting closer to the 7 per cent financial danger zone that has pushed other European nations into international bailouts.
The negotiators need to find €11-billion ($14.8-billion U.S.) more in austerity measures.
Mr. Leterme aims to get the budget deficit down to 2.8 per cent of GDP in 2012, but the European Union is far from convinced, forecasting a wider shortfall of 4.6 per cent for the country. It is also forecasting that Belgium's debt-to-GDP ratio will break through the 100 per cent barrier in 2013 without big budget reforms.
The record-long negotiations since the June 13, 2010, election have been hobbled by fundamental differences over Belgium's future. Some pundits have predicted the split of the kingdom of 6.5 million Dutch-speakers in Flanders and 4.5 million French-speakers in Wallonia.