<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Timothy Lavin</p>&#xD; &#xD; <p>Belgium is still adding to its world-record tally for days without a full-time government (it surpassed Iraq for this unhappy distinction in February). For a country whose economy is slowing, stocks are slumping, and bond yields are surging in the midst of a continent-wide debt crisis, this is alarming.</p>&#xD; &#xD; <p>Expansion in Belgium's gross domestic product slowed in the second quarter. The benchmark Bel20 stock-market index is down nearly 20 percent since May 2. Yields on Belgian 10-year bonds rose to 4.54 percent Thursday, the highest in two and a half years, and the premium investors demanded to hold those bonds over German bunds reached a euro-era record of 218 basis points, according to Bloomberg data. Business confidence has been declining for months.</p>&#xD; &#xD; <p>This might sound like garden-variety dysfunction in the euro-zone. But in Belgium's case, economic woes are complicated by a surpassingly strange political stalemate. Since elections held on June 13, 2010, Belgium's political parties have been unable to form a coalition, reflecting deepening divisions between Dutch-speaking northerners and French-speaking southerners that may be pushing the country toward a breakup. The Economist Intelligence Unit reckoned July 1 that Belgium is the "least stable country in the EU" and saw no resolution to the impasse in sight.</p>&#xD; &#xD; <p>This would remain a mere curiosity for the rest of the world, except that it'll be awfully hard for Belgium to grapple with its worrisome debt levels without a strong federal government -- or any federal government. Belgium's budget deficit is&#xA0;a modest 3.3 percent of GDP, but its debt-to-GDP ratio is the third highest in the EU. Standard &amp; Poor's estimates a one-in-three chance of a downgrade on its credit rating.</p>&#xD; &#xD; <p>All this suggests that British regulators were right to ask U.K. banks to start disclosing their exposure to Belgian debt. It also suggests, ominously, that Belgium may be joining Spain and Italy on the lengthening line of European economies in serious distress.</p>&#xD; &#xD; <p>(Timothy Lavin is a member of the Bloomberg View editorial board.)</p> </body> </html>