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Belgium’s knotty politics gives EU’s recovery fund its trickiest test yet

Belgium’s knotty politics gives EU’s recovery fund its trickiest test yet

by host

Belgium’s notoriously messy political system is giving the EU a real headache in the way it doles out recovery fund cash.

In a story that embraces accusations of blackmail, a Flemish liberal prime minister, a French-speaking Socialist pensions minister, the mayor of an old industrial city and a workers’ party that’s not even in government, the country is at serious risk of missing out on €4.5 billion in EU grants.

At the heart of the matter is the decades-old question of how much the EU should try to influence national policies in its 27 members. The bloc’s €800 billion joint-debt post-pandemic fund is based on a simple trade: cash in exchange for reforms. But when that difficult balance of carrot and stick clashes with thorny domestic politics, it can backfire.

The Belgian tangle is a case in point. To get the money, Belgium must introduce reforms to make its pensions system less costly.

Trouble is, the country’s seven-strong governing coalition is at loggerheads over how to do it, with some influential politicians suggesting it would be better just to refuse the cash altogether, and EU officials expressing doubt as to whether Belgium will manage to agree on a reform.

“Europe should not dictate what kind of pension policy states should have,” Karine Lalieux, Belgium’s pensions minister, told POLITICO in an interview.

The country is yet to present its first payment request. While it’s not alone — Germany, Finland and several other governments have yet to request funds — it’s the reason for the delay that is worrying EU officials.

While the establishment of the recovery fund, in a deal struck in 2020, was seen as a one-off exercise through which EU countries would implement structural reforms in exchange for EU grants and loans, there have since been suggestions that the model could be replicated in the future.

But for that, policymakers would need to see that the instrument has been a success.

“If you can’t implement hard reforms, what’s the point of repeating it?” an EU official said.

Seven parties

The Belgian government stretches from right-wing economic liberals to Christian democrats, Socialists and greens.

In an effort to break the impasse, Prime Minister Alexander De Croo tabled his own pension reform proposals. But this did little to heal the rift within the coalition.

He’s not helped by the fact that while he’s a Flemish liberal, the largest party in the coalition are the French-speaking Socialists — including pensions minister Lalieux.

Belgium’s Prime Minister Alexander De Croo | Pool photo by Olivier Matthys/EFE via EPA

The Socialists themselves are feeling the heat from the French-speaking Belgian Workers’ Party (PTB) who aren’t in government but have campaigned against pay rises for state-owned company CEOs and staunchly defended existing pensions and unemployment benefits, catching the attention of voters disenchanted with the more mainstream Socialists.

That gives a clue as to why Paul Magnette, the leader of the French-speaking Socialists — the mayor of the city of Charleroi rather than a minister in the national government — said he’d rather give up on EU grants than have to sign up to a reform contrary to his party’s values. He accused the European Commission of “blackmail.”

The political bickering meant that Belgium missed an 18 months deadline falling on January 13, after which, under the recovery fund’s rules, the Commission must assess whether the country has achieved any progress. If not, the Commission can annul the plan and recover any advance payment. For now, that’s not the case.

“At this stage, in the case of Belgium, the Commission does not have evidence to conclude that” the country achieved no progress, a Commission spokesperson said, adding that “the satisfactory fulfilment of [Belgium’s progress] will be assessed only upon the submission of the first payment request.”

Pensions bonus

The crux of the fight is the budgetary impact of the reform, which is meant to “improve the financial sustainability of the social security system and of public finances,” under the recovery plan agreed by Belgium with the Commission.

One problem is that a “pensions bonus” agreed last summer gives retirees a financial incentive to keep working beyond the first chance of retirement and this increases the burden of pensions in the state budget by 0.1 to 0.3 percentage points of GDP by 2070, according to the country’s Federal Planning Bureau, an independent oversight body.

“It’s important that in the next two, three decades that we see that we will be able to manage the cost of the pensions and the way how it’s organized,” said Vincent van Peteghem, Belgium’s finance minister from another party — the Flemish Christian democratic CD&V, —ahead of a meeting of eurozone finance ministers on Monday.

Lalieux said she was negotiating additional measures with De Croo to ensure that the budgetary impact of reforms is neutral or even positive.

These include narrowing the pension bonus to low earners, and reviewing fiscal advantages for private complementary pensions, which she says “mean that some people reach enormous pensions subsidised by the state.”

These tweaks, she said, could generate a net saving of 0.2 to 0.3 percentage points of GDP by 2070, so fulfilling Belgium’s commitments under the recovery plan.

The coalition still hopes to have a deal on pensions allowing it to advance its first payment request by next month.

“We must do this by around February 20,” Lalieux said. “Anyhow, that’s the objective.”

Barbara Moens contributed reporting.

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