Belgium's credit rating lowered

Standard & Poor's downgraded Belgium’s financial standing today, citing the country’s government stalemate and a looming European recession.

Spurred on by the ratings agency’s cut, six leading parties hurriedly resumed talks to agree on a 2012 budget to contain Belgium’s high debt and deficit, two more reasons why the country has come under increasing pressure from financial markets this week.

In a sign that financial contagion is spreading across Europe, the agency cut Belgium’s credit rating from AA+ to AA, a move coming two days after Germany fared surprisingly poorly at a bond auction.

Belgium has been without a permanent government for 530 days, as a series of negotiators has struggled without success to bridge the country’s divide between its French and Dutch speakers.

“In our opinion, protracted political uncertainty remains a risk to its creditworthiness,” the ratings agency said.

Caretaker Prime Minister Yves Leterme said “we really need strong signals now” from the six political parties trying to resolve the 2012 budget. He said the six parties needed a deal “tonight, the coming days – but preferably before we hit the market again” Monday.

In a statement, Standard & Poor’s said Leterme’s caretaker government “lacks a mandate to implement deeper fiscal and structural reforms”.

The country’s yields on long-term bonds are closing in on 6% – getting closer to the 7% financial danger zone that has pushed other European nations into international bailouts.

“If we have to go to the markets next week to refinance our debt, the downgrading could make sure that we have to pay an even higher price,” Leterme said.