13 Opening Up Financial

Markets: the Belgian

Perspective
Olivier Lefebvre

This paper is divided into four sections. The first section will outline
the major characteristics of the Belgian financial markets in order to
give some basic background necessary to understand the specific
issues in Belgium. The second section will focus on some of the major
challenges that Belgium has to face relative to the opening up of
financial markets. The third section presents the probable course of
action that the major market participants, and particularly the auth-
orities, are likely to take. Two final considerations are discussed in
the fourth section. As in these questions one has to deal with the
macro and the microeconomic levels, both levels will be addressed,
but the focus will be on the microeconomic issues, being the most
relevant ones.

MAJOR CHARACTERISTICS OF THE BELGIAN

FINANCIAL MARKETS

Macroeconomic aspects

There are two distinctive macroeconomic characteristics of Belgium.

First, as a member of the European Snake and since 1979, as a
member of the European Monetary System (EMS), the Belgian
monetary authorities have been constantly seeking a stabilization of
the Belgian franc (BEF) vis a vis the deutschemark (DM). They had
to depart temporarily from this goal in the early eighties because of
the lax budget and income policies of the late seventies. Since the
mid-eighties Belgium has again pursued this strong currency policy
with an increasing success on the front of inflation, as well as on the
front of interest rates differentials with the DM. Belgium has given
up all its (illusion of) independence of monetary policy, and has been
167
G. Winckler (ed.), Tax Harmonization and Financial Liberalization in Europe
© Confederation of European Economic Associations 1992
168 Financial Liberalization

strictly following the initiatives of the German Bundesbank.

An even more distinctive characteristic is the huge level of the
Belgian government debt which is currently as high as 130 per cent of
GNP (the worst figure among the OECD countries). The two re-
cessions that followed the oil price shocks of the seventies caused the
budget deficit to slip as in most European countries, but to a much
larger extent in Belgium. Severe austerity measures and the im-
proved global economic situation have helped to reduce the annual
deficit from 13 per cent of GNP in 1983 to around 7 per cent in 1988
(total government deficit including social security). The objective of
the government is to reduce the deficit to less than 4 per cent, which
would neutralize the so called 'snowball effect' of the public debt.

Microeconomic and Structural Characteristics

Concerning the Belgian financial and banking markets two regulatory

features are important:

1. No restrictions on capital movements exist, but the Belgian

Luxembourg Economic Union (BLEU) lives with a two-tier
exchange market that performs efficiently, particularly during
the exchange crises of the early eighties;
2. The regime of the banking law is such that it requires the
separation of banks and holding companies and under which
banks are not allowed to hold permanent participations in
non-bank corporations. However, banks can underwrite cor-
porate securities.

The competitive structure of the Belgian banking market is roughly

as follows:

1. There are three major categories of depository financial inter-

mediaries in Belgium: commercial banks, savings banks, and
public financial intermediaries. Despite a steep despecialization
trend during the last fifteen years there remain strong differ-
ences among these categories. The first group, commercial
banks, is dominated by three large diversified private insti-
tutions, and some specialized banks. The striking characteristic
of the second group is the small average size of the private
savings bank, and the huge share of government paper in their
assets.