Since the onset of the sovereign debt crisis in Europe in early 2010, developments in the public debt of Eurozone countries have been closely followed by financial markets. Belgium, one of the countries in Europe with the highest level of debt relative to GDP, has not been an exception. Even though Belgium managed to stay more or less off the radar screen of international investors thanks to its economic performance, the ongoing political crisis and the uncertainty surrounding the potential effects of future reforms have attracted, more recently, the attention of market participants as spreads on government bonds have been widening. This pushed the question of debt sustainability to the top of the agenda of Belgium’s policy- makers.
Against this background CEPS, jointly with the Katholieke Universiteit Leuven (KUL) and the Université de Liège (ULg) committed to develop an attentive exam of Belgium’s debt sustainability. The central objective of this research project will be to present an overall analysis of Belgium’s debt sustainability accounting for the factors of risk that could affect the cost of refinancing its debt in the future. For this purpose the analysis will focus on sources of uncertainty associated with long-term trends and relevant institutional reforms. In particular considerable attention will be devoted to i) the effects of an ageing population, ii) developments in current account and households’ savings and iii) the possible consequences of reforms aiming at fiscal federalism.