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The Curious Case of Belgium

In 1992, a political drama hit Switzerland when the art featured at the Swiss pavilion of the Word Exposition in Seville asked: ‘Does Switzerland even exist? The artist suggested that cultural variety rather than uniformity was defining Switzerland, to the point where the Swiss nation was a purely artificial concept. The same question could be raised about the Kingdom of Belgium, a small, multi-lingual and multi-cultural country with eleven million inhabitants surrounded by Germany, France and the Netherlands (and Luxembourg, if Luxembourg existed).

As a matter of fact, Belgium achieved a rare feat in macroeconomics which makes its existence relevant to the world. Here is a mature nation which drove its government debt-to-GDP ratio from 140% in the 90’s to less than 90% in 2007. After a hiccup caused by the Great Financial Crisis which sent the ratio back above 100%, it is about to return below the symbolic 100% threshold in 2019 as currently expected by the European Commission. Whilst still elevated when compared to a European Union level of about 80%,the long term trend contrasts with that of France, Spain or Italy, and even more so with that of the United States of America.

How did Tintin’s country do that? Like any firm, governments delever when they make a profit (through a primary budget surplus) and when their growth rates is superior to the interest rate they pay on their debt. So Belgium did just that: the government went through a restructuring process to become a for-profit organization with a margin equivalent to 4-5% of GDP (1993-2007). In addition, instead of causing a damaging recession through drastic austerity measures (as Italy did in panic mode in 2011-12), it implemented a series of structural supply-side related initiatives which boosted its productivity and long term growth profile (unlike Italy). All this happened without the country being able to implement a debt monetization and inflationary policy since its monetary policy was under administration by the European Central Bank.

Paul Krugman argued in a 2014 NYT article that that Belgium’s secret has been its inability to form a lasting government, making it possible for its economy to prosper without political interference. If that were true, Italy would probably be debt-free by now. Rather, Belgium’s smart microeconomic policies, consistency and hard work should be praised.

Belgium is not perfect and attractive macroeconomic stats may conceal many issues. But it has accomplished what only few countries did, and without triggering an economic crisis or seeing its democracy fall irreversibly into Plato’s anarchy.

A rising government debt-to-GDP ratio is akin to wrinkles appearing on the face of a maturing economy. Like Francis Scott Fitzgerald’s curious case of Benjamin Button, Belgium has reversed that ageing process and is getting younger. An example for many countries of the so-called Old Continent in need for a rejuvenating cure. And for the U.S.A.


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