BRUSSELS (MNI) – The European Commission Sunday welcomed Belgium’s
announcement Sunday that it had reached agreement on a 2012 budget.

“I welcome the agreement presented today by Mr Elio Di Rupo on the
measures to underpin the Belgian federal budget with the aim of bringing
the general government deficit to 2.8% of GDP in 2012, as recommended by
the EU Council, and of paving the way for further consolidation in 2013
and 2014,” EU Economics and Monetary Affairs Commissioner Olli Rehn said
in a written statement

“We also take note of the structural reforms announced, especially
those intended to restore fiscal discipline and enhance competitiveness,
whilst preserving social fairness,” Rehn said.

“Mr Di Rupo’s announcement that the budget law should be worked out
very soon is equally important, as it should provide for a swift and
full assessment by the European Commission under the excessive deficit
procedure,” the commissioner added.

Under EU rules that come into force next month, countries with
budget deficits exceeding 3% of their gross GDP risk financial
penalties.

The budget agreement is a breakthrough for Belgium, which has
struggled for more than a year to implement meaningful reforms under a
caretaker government.

The agreement, brokered by Di Rupo, a French-speaking socialist
tasked with brokering the formation of a government, comes as the
country faces heightened scrutiny from investors and the Commission.

Belgium’s borrowing costs rose sharply last week amid widespread
market turbulence throughout the Eurozone and market concerns about the
slow pace of reforms in the country, which hosts the EU’s most important
political institutions.

Intensifying the financial stress, Standard & Poors on Friday
downgraded Belgium’s sovereign debt from AA+ to AA, citing the lack of a
government and the looming Eurozone downturn, which could hit Belgian
imports. The downgrade struck like a bolt of lightening in the Belgian
debt market, and it sent the country’s political leaders scurrying back
to the negotiating table over the weekend.

The spread on Belgium’s 10-year bond spiked Friday to 5.48% and the
spread against benchmark German Bunds hit a euro-era record of 350 basis
points.

–Brussels bureau: +324-952-28374; pkoh@marketnews.com

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