BRUSSELS (MNI)- Luc Coene, the governor of Belgium’s central bank,
Saturday weighed in on government talks taking place over the weekend,
calling for a tighter grip on public spending growth in order to bring
the country’s fiscal deficit into line with EU limits.

Coene’s comments, like the urgent discussions among Belgian
government officials, took place after the European Commission
questioned some of the assumptions underpinning the government’s
estimates.

“One of the weaknesses of Belgium’s public finances is the growth
in the rate of expenditure,” Coene, who is also a member of the European
Central Bank’s Governing Council, told Belgian radio RTBF and newspaper
La Libre. “We must make sure that this level of growth is lower.”

He added: “The level of [spending] growth must be below the growth
potential of the economy, whereas in recent years it has been above.”

Coene said it was “very important that the government show it has
the will and capacity to control the budget,” in order to reassure
markets and keep a lid on Belgium’s rising borrowing costs.

While the Belgium government foresees 0.8% growth in 2012, the
central bank governor said growth in Belgium in the first quarter of
2012 was expected to be “very anemic if not slightly negative.” But he
said it was “not yet very clear if we are going to have a recession.” If
there were a recession, it would not be comparable to that of 2008-2009,
Coene said.

Belgium’s coalition government announced an ambitious plan to cut
E11 billion from the federal budget this year in order to bring the
country’s fiscal deficit down to 2.8% of GDP. The Commission, however,
estimates that the plan may not be enough to bring the deficit below the
EU’s 3% limit, and has called on Belgium to find an additional E1-2
billion in savings, Belgian newspapers reported on Friday.

If Belgium fails to take additional measures, the European
Commission could decide as soon as next week to recommend policy actions
under the EU’s new tougher fiscal rules, including freezing certain
expenditures in the 2012 budget.

With regard to the broader Eurozone, ECB Governing Council member
dismissed fears about the euro area’s survival as “absolutely fantasist”
and said there is “no reason to succumb to panic.”

Commenting on speculation that Greece could abandon the common
European currency, Coene said that “Greeks would be mistaken if they
believed that leaving the euro would make their adjustments easier.”

He added: “If the Greeks do decide to leave, something that would
seem to me inconceivable and in contradiction with the efforts made by
their prime minister and the sacrifices already consented to by the
population, then the rest of Europe will have to cut the cord to protect
itself.”

Commenting on the Belgian banking system, Coene said that KBC’s
exposure to Hungary is “not of a nature that would imperil the bank.”

He also said that it was difficult to count the cost of the
government’s support for troubled Franco-Belgian banking group, Dexia,
noting that it would depend in part on the resolution of the sovereign
debt crisis.

“If there are doubts about the credibility of Belgian and French
public finances, this could make it more difficult and dangerous,” Coene
said.

–Brussels bureau: +324-9522-8374; pkoh@marketnews.com

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