The crisis in Belgium:Socio-economic impact and

policy measures

Bérengère Dupuis

Vilnius, 9 May 2009

A severe contraction of growth

• Relatively sustained growth in the course of 2008• Brutal slow down in the last quarter: -1.7% of

GDP compared to the previous quarter• Estimated growth in 2008: 1.2% of GDP (BFP)

Compared to historical trend: 2.3% on average• Forecast (BFP, May 2009):

2009: -3.8% 2010: 0.0% (progressive recovery)2011-2014: 2.3% a year on average

BUT: great uncertainty

A severe distabilization of the banking system

• Belgium: first country in Europe to be hit by the international banking crisis (September 2008)

• Big Belgian or Belgo- banks with solvability problems: Fortis, Dexia, KBC, Ethias

• Usual State interventions: recapitalisation, State guarantee for interbank lending, deposit guarantee raised.

• More problems ahead: new intervention of the State in May to rescue KBC (State guarantee)

A severe distabilization of the banking system

• New governement intervention planned to stabilize the banking system (isolate toxic assets)

• Problems faced by a small country as Belgium: big banks bigger than the economy - banks too big to fail and too big to be rescued

- big banks operate at a European level

Idea of a European emergency fund financed anticipatively by banks for recapitalisation, loan guarantees… in case of crisis.

First assessment on employment:signs of severe deterioration

• Slow down of job creation in 2008 : +22,300 jobs (Q1), +13,500 (Q3), +2,000 (Q4)

• First before firing: non-renewal of interim contracts (-11% by the end of 2008), fixed-term contracts

• Temporary unemployment for blue collars (+93,000 in April 2009 compared to April 2008)

impact on employment cushioned

First assessment on employment:signs of severe deterioration

• Unemployed workers: +54,240 May 2009 /May2008

• Slow increase end of 2008 (after 1 year of continuous decrease)

• Flanders hit more severely: +35,000 in May 2009/May2008 (sensitivity to business cycle < share of industry in the economic structure)

• First workers hit: men, young people, low or medium qualified, Belgians but + foreigners.

First assessment on employment:signs of severe deterioration

• First sectors hit: automotive industry, metal industry (Arcelor-Mittal mainly), banking sector (restructurations announced) job destruction, decrease in production, subcontractors affected.

• Restructurations announced in the media: 13,706 jobs concerned up to May 2009. Automotive industry (2,913 threatened jobs), other industries (4,466 threatened jobs), financial sector (1,389 threatened jobs)

Forecast 2009-2014 (BFP): strong increase in unemploymentIn terms of unemployment, the worse is yet to come:

• 2009: impact on unemployment cushioned by the important decrease in average hours worked, « only » 37,000 jobs lost.

• 2010: main impact (lag), 53,000 jobs lost.

• From 2012 only: back to relatively high levels of job creation (about 43,000 on average/year).

Forecast 2009-2014 (BFP): strong increase in unemployment• Only very slow decrease in unemployment despite

recovery in job creation:- increase in working population: +185.000 (mainly immigration)- higher activity rate for women

• Forecasted evolution:- 2009: +78,000 unemployed people- 2010: +94,000 unemployed people- 2011:+22,000 unemployed people (more

moderate increase)

Forecast 2009-2014 (BFP): strong increase in unemployment• Global unemployment rate:

2009: 11.8% 2011: 15.2% (record post-WWII level)2014: 14.5% (slow decrease starting off)  

Emphasizes the need to set the priority onemployment issues:• Employment/labour market policies in Belgium• Additional, coordinated answer at the European

level with a focus on job preservation and support to workers.

Recovery plans: government and social partners

• First recovery plan in December 2008: 0.4% GDP (1.3 billion euros) 

• Participation of trade unions: several recovery measures negotiated by social partners in the framework of the interprofessional agreement 2009-2010 (thus financed by the government)

• Lobbying from the trade unions (and employers), on several policy measures, partly successful

First recovery plan (December 2008)

Measures for workers: focus on purchasing power and maintaining workers in employment:

• IPA: lump-sum increase in wages (max. 375 euros over 2 years: meal tickets, eco-tickets) against decrease in wage costs financed by the government (% income tax kept by the firms)

• Automatic indexation of wages to inflation preserved despite great pressures after high inflation in 2008.

• IPA: indexation of social security benefits (pensions, unemployment benefits…)

First recovery plan (December 2008)

• Temporary unemployment improved: higher rates of wage preservation (from 60% to 70%), higher wage ceiling. Measure asked by the trade unions.

• Access to the system of temporary unemployment for workers under interim and fixed-term contracts

• In case of collective firing: access to (constructive) active labour market policies to workers under 45 y.o.

• 30 euros reduction on the electricity bill of households.

Recovery Plan “bis”(April 2009)

• Beginning 2009: discussions on a possible extension of temporary unemployment to employees (asked by the employers)

• Issue left to the social partners, but negotiations failed (fear of the trade-union: cost of the measure in case of exagerated use by employers).

• Government leads the discussion but lobbying from the trade unions to make their voice heard, result acceptable.

Recovery Plan “bis”(April 2009)

• Government presents three « crisis measures »: temporary (1 July - 31 December 2009) with possible extension in 2010.

• Again, objective = avoid as much as possible the firing of workers because of the crisis.

Recovery Plan “bis”(April 2009)

• Temporary reduction of working hours in a firm by 20 to 25% with reduction in social security contributions (private/public, blue collars/ employees)

• Voluntary, temporary switch from full-time to part-time (private firms hit by the crisis, blue collars/employees)

• Work contract totally or partially suspended because of insufficiant amount of work, for employees only (not temporary unemployment but similar measure)

The cost of the crisis• Cost of the crisis: recovery plans, rescue plans for

banks, automatic stabilizers (loss of revenues from taxes and increase in unemployment benefits)

• IMF forecast (April 2009):

Public deficit: 2009: -4.5% 2010: -6.1%

Public debt: 2009: 95.7% (7% banks rescue)2010: 100.9%  

PLUS still in sight: population ageing.

Question: who is going to pay?• The workers? Twice: (1) job and wage losses, (2)

tax increases and/or reduced State spending on public services.

• The banks? Contribution after the system is stabilized? Idea for future crisis: European emergency fund

• Increased tax revenues: fiscal fraud /evasion, increased tax on savings income, green taxation…

Important: use of public money under conditionality and state control.

Rate of trade union membership in Belgium

• Active population : 51%• Non active population : 87%• Total population: 65%

Stable evolution (51-53% of active population since 1980, slow decrease but not in number)

• 3 trade unions :   CSC (catholic): 1.700.000 workers

FGTB (socialist): 1.200.000 workers CGSLB (liberal): 150.000 workers