Belgium's borrowing rates up sharply in auctions

Belgium had to pay sharply higher interest rates to borrow money in the markets today, in another sign that the country's political instability has ratcheted up concerns over its ability to deal with its debts.

Yet authorities said they were heartened that Belgium could easily raise 2 billion euro in a variety of auctions. On top of the bond auction for institutional investors, the country also counts on raising up to 1 billion euro in government bonds from private investors within Belgium.

Today's auction followed a credit downgrade of Belgium by Standard & Poor's last week and authorities had anticipated the specter of even higher rates highlighting a lack of investor confidence. For the ten-year issue to institutional investors, for example, the yield spiked to 5.66 per cent as against 4.37 per cent in the equivalent auction last month.

"It was important that we could show that, as well on the international market as on the private market in Belgium, we were able to collect enough despite the downgrade," said Jean Deboutte, the spokesman for Belgium's debt agency.

"The rates are higher than last time, but it was the last opportunity of the year," he said.

Over the weekend, negotiators trying to set up a government following a record political stalemate dating back to the June 2010 election, finally agreed on a 2012 budget. They are expected to have a grand coalition in place by the end of the week.

Standard & Poor's pointedly mentioned the government stalemate in its downgrade on Friday and authorities were happy that today's rates were somewhat lower than last week, when they closed in on 6 per cent.

Also, Belgium's bond drive to private investors in Belgium has proven successful over the past days and caretaker Prime Minister Yves Leterme said he hoped "to close in on 1 billion euro by the end of the week."

"Every euro that we can borrow within our country is a government saving," Leterme said. "It is purchasing power that we keep in our country. So it is good in every sense you can think of."

Belgium's slightly lower rates in the secondary bond markets came after the weekend budget agreement, which promised a deficit of no more than 2.8 per cent of GDP to remain within the EU target. It listed 11.3 billion euro in austerity measures as a step toward assuring a balanced budget in 2015.

EU monetary affairs chief Olli Rehn welcomed the announcement of the breakthrough and said EU officials would soon review the budget text to see if it meets his recommendations of fiscal rigor and increased competitiveness.

AP