Belgium: will freeze spending to appease EU

Belgium will freeze more than a billion euros ($1.3 billion) in spending for several months after the European Commission raised concerns, the country's budget minister said on Saturday. The commission, the European Union's executive body, has rejected Belgium's 2012 budget as overly optimistic, and demanded it shave off 1.2 billion to 2.0 billion euros to avoid breaching the three percent deficit threshold. "The commission has given us the choice to either come up this weekend with savings of 1.2 billion euros, which we refused to do, or to freeze some of our spending over a period of several months, which is what we have opted for," minister Olivier Chastel told RTL-TVI television. In a letter sent Thursday to Belgian Finance Minister Steven Vanackere, the commission said Belgium should "in the coming days" agree to pare down the budget by about 1.2 to 2.0 billion euros. "This would allow us to conclude ... that Belgium has undertaken the required fiscal effort," it said, demanding a response by Monday morning at the latest. Under new rules agreed in December that give the commission added powers to enforce budgetary discipline, infringement of the three percent deficit ceiling can set off a quick train of action including fines and judicial penalties. The commission last year singled out Belgium and four other EU nations -- Hungary, Poland, Cyprus and Malta -- as possibly failing to meet the target. It will issue a statement on January 11. Chastel said the freeze will not influence budget decisions to be taken by the government next month. RTL said the main target of the savings freeze will be some 400 million euros destined for the railways. The defence department will also have to delay the purchase of helicopters because of a freeze on some 177 million euros. The Belgian budget, based on a 0.8-percent growth rate, forecasts a 2.8 percent deficit after sweeping cuts of 11.3 billion euros aimed at avoiding a no-policy-change deficit that could have run up to 4.6 percent of gross domestic product (GDP). But commission experts believe Prime Minister Elio Di Rupo's government was over-optimistic on expected savings, notably in healthcare, and on expected revenues from the fight against tax evasion.