Belgium: New Government Formation Reduces Political Uncertainty, but Consolidation Pressure Looms Large

Yesterday, the new Belgian government led by prime minister Bart De Wever of the New Flemish Alliance (N-VA) was sworn into office after the unveiling of a new five-party government coalition on 31 January 2025. An agreement between four centre-right parties (N-VA, CD&V, Mouvement Réformateur, Les Engagés) and one centre-left party (Vooruit), known as "Arizona" because of the respective parties' colours, was reached after more than seven months of protracted negotiations, complicated by diverging views on budget consolidation measures. The formation of a new government is reducing policy uncertainty, but the political stability of the coalition will be tested by European Union (EU) fiscal rules calling for fiscal consolidation efforts. Belgium faces fiscal pressures as deficits are already relatively large and are projected to widen on a no-policy-change basis.

Key highlights
-- Formation of new government is reducing political uncertainty with the proposal of ambitious tax, pension and labour market reforms.
-- Proposed measures are likely positive for Belgium's medium-term fiscal outlook.
-- The political stability of the new coalition will be tested as the implementation of the proposed policy measures could be challenging.

"The formation of a new government is reducing policy uncertainty and announced policy measures would improve Belgium's fiscal trajectory," said Max Dietz, Assistant Vice President in the Global Sovereign Ratings Group. "The implementation of ambitious measures is key but could prove challenging."