Belgium: Small Nation Packs a Big Punch
Belgium, with its multicultural and multilingual heritage, remains one of Europe’s best-kept secrets. This tiny nation is home to some of the world’s best chocolates and laces, but also serves as the nerve center of the European community. Wedged between giants such as Germany and France, it cradles an immensely rich history, and offers a wealth of art, food and architecture. Divided into two parts, the country is comprised of Flanders in the north with cities like Antwerp, Bruges, and Ghent and a network of crisscrossing canals; and Wallonia to the south with its rolling hills,countless castles, and an atmosphere of charm in such cities as Liege, Namur, and Tournai. With this, Belgium is a fascinating compendium – a melange of the best of European traditions.
Tumultuous past giving way to stability
Belgium’s history has always been linked to both commercial and cultural exchange, and much of its character is due to its role as the great meeting place of Western Europe, namely Brussels, one of the world’s most cosmopolitan cities. Belgium derives its name from a Celtic tribe, the Belgae, who were forced to cede power to Roman legions during first century B.C. Since then,the tiny nation passed through a series of rulers – from the Germanic tribe of the Franks, to the rule of the Duke of Burgundy, and eventual occupation by Spain, Austria, France and finally the Netherlands.
Independence flowered in the century in 1830 when the long-suffering Belgians revolted against centuries of external rule. The Belgians then chose Leopold of Saxe-Coburg to be their first king, albeit under a constitution that significantly diluted the powers of the monarchy. His successor, Leopold II, laid the foundation for exploration of the Congo River Basin of Africa, the beginning of Belgium’s colonial mastery of the Congo.
Despite maintaining a policy of neutrality, Belgium was caught in the crossfire of World War I with Germany invading the country on August 4, 1914. The country was thrown into a fierce battle for freedom and aligning with the Allies, Belgium tried to yank the yoke of German imperialism. The city of Ypres in the Flemish province of West Flanders turned into a raging inferno as nearly 100,000 troops lost their lives in 1915. Under the Treaty of Versailles in 1919, Belgium obtained the German-speaking districts of Eupen, Malmedy, St.Vith, and Moresnet. Despite a resilient economic recovery following the war, Belgium was again mercilessly bombed by the Germans in World War II resulting in the unconditional surrender of King Leopold III. Eventually, the Belgian government-in-exile in London was restored to power following the end of the war, and an uneasy tense period of political drama began. Leopold III was allowed to return from Germany as the sovereign although protests against his reign prompted the king to abdicate in 1951, paving the way for Baudouin as his successor.
Again, although economically the country flourished in the immediate years following the war, Belgium continued to suffer from internal and external turmoil. Its status as a colonial superpower began to erode when the Belgian Congo (now the Democratic Republic of Congo) declared independence, followed by Ruanda-Urundi (present day Rwanda and Burundi).
Adding to this, in 1977, the country was divided into three administrative regions: Flanders, Wallonia, and Brussels. In 1980, the Belgian constitution was changed to recognize this separation, shifting the structure of the nation to a federation. The country is a Parliamentary democracy under a constitutional monarch. The 1994 constitution, granted autonomy to Wallonia, the Flemish region or Flanders, and the bilingual Brussels-Capital region. In addition autonomy was also assured for the Flemish, French, and German-speaking communities. The central government however retains responsibility for foreign policy, defense, taxation, and social security.
Currently, the country is grappling with an ethnic crisis with tensions rising between the Dutch-speaking Flemish and French-speaking Francophones. The conflict has spilled over into Belgium’s politics as well. With barely nine months in power, Prime Minister Yves Leterme was forced to resign in December 2008, as he became embroiled in the ethnic rift, and the controversial handling of a bank bailout. The speaker of the Belgian parliament, Herman Van Rompuy, a Flemish Democrat, is now touted to lead the country’s five-party coalition.
A land that loves food, drink and chocolates
Despite more than 2,000 years of foreign occupation, Belgium has managed to carve its own identity on the European map. The land has given the world Tintin, a beloved comic book character, as well as more than 100 varieties of beer, melt-in-the-mouth praline chocolates and exquisite Belgian laces. With three language communities – Flemish-speaking Flanders in the North, French-speaking Wallonia in the South and a small German-speaking population in the East – Belgium’s linguistic heritage is vast and varied. Some of the world’s best-known composers such as Cesar Frank, Eugene Ysaye, and Wim Mertens have graced the Belgian music stage, while Adolf Sax, the inventor of the saxophone, was born in Belgium.
Contrary to what the name implies, French fries were actually a Belgian invention, and six of the seven breweries that are authorized to produce the world-famous Trappist beer are in Belgium. A wealth of architecture is richly showcased in the Romanesque castles of Lavaux Saint Anne and Bouillon, Gothic structures like the Brussels Cathedral, and the classical 19th century styles of the Palace of Lorraines in Brussels.
Services-reliant economy shows continued resilience
Despite suffering the onslaught of two World Wars, Belgium’s economy has always shown a tendency to be remarkably resilient. The country has a highly developed market economy and belongs to the Organization of Economic Cooperation and Development (OECD). With a population of 10.4 million, Belgium boasts one of the highest per capita GDP in the world, classifying it as a high-income economy in the OECD.
The Brussels Capital Region stands at the forefront one of the world’s most highly industrialized regions. Being one of the founding members of the European Community (EC, now known as the European Union), the nation was the first to undergo an industrial revolution in continental Europe in the early 1800s, eventually becoming a major steel producer in the 19th century. Prospering by this growth was the southern region of Wallonia, especially the Sambre-Meuse valley with its rich deposits of coal.
Throughout the country’s rapid industrial growth, the agricultural sector declined, and this trend became even more pronounced post World War II. Today, this sector accounts for just 1% of Belgium’s GDP. The main crops are wheat, oats, sugar beets, potatoes and flax.
Accompanying the boom of industrialization was the development of highly efficient and capable transportation and infrastructure along with a skilled and talented workforce. Flanders flourished in the postwar bustle as not only a center of the petrochemical and light manufacturing industries, but as also as the home of Europe’s second-largest port, Antwerp. The city also doubles up as the leading diamond-cutter in the world, producing about 70% of all finished diamonds. Thriving on steel manufacturing, Wallonia became the center of growth in the 19th century. However, as coal reserves became exhausted, and an aging steel industry grew increasingly inefficient, the area declined.
The 1971 and 1979 oil price shocks sent the economy into a period of prolonged recession as unemployment soared, personal and consumer debt increased, and the nation’s deficit rose. In fact, cumulative government debt reached 121% of GDP by the end of the 1980s. In 1990, after linking the Belgian franc to the German mark through interest rates, the economy slowly seemed to recover. Then in 1992, a rollercoaster ride began, with Belgium’s economy sinking into a recession, eroding the country’s GDP by 1.7%. This was followed by consistent growth until a sharp dip in 2001-03 due to a global economic slowdown. From 2004 to 2007, the Belgian economy staged a modest recovery, with 2006 GDP growth touching 3.2%, and the economy expanding at 2.8% in 2007. In the wake of the broader economic deceleration in the Euro-zone, GDP growth is expected to moderate to about 1.4% in 2008 (Eurostat), with private consumption, investment, as well as exports witnessing a slowdown.
Belgium’s economy today is mostly dependent on services. Retail, businesses and tourism account for a larger percentage of the nation’s GDP, while financial services continue to expand and attract foreign investment. Transportation, trade, and industry follow closely behind. On May 1, 1998, Belgium became a member of the European Monetary Union and adopted the Euro as its currency after January 1, 2002.
The country is one of the world leaders in the pharmaceutical industry – employing almost 30,000 people. This sector alone accounts for 10% of all Belgian exports. Interestingly, 36% of all private sector R&D investment is ploughed into pharmaceuticals – nearly twice the European average. The country is heavily dependant upon imports for most of its raw materials, having virtually no natural resources. The result is that Belgium functions as a processing machine – turning the imported raw materials into high-quality goods. Services account for a staggering 75% of Belgium’s GDP, with industries contributing to 24% of the country’s output. Dependent on Europe for most of its trade, Belgium’s main partners are Germany, the Netherlands, France and the UK. Leading exports are electrical equipment, vehicles, diamonds, and chemicals.
Manufacturing is mainly concentrated in East Flanders, Limburg and Hainaut. The coalmines of Sambre-Meuse, and Kempenland, which had nurtured Belgium’s energy needs since the 13th century ceased to function by 1992. Today the country remains an importer of coal. Textile production, which began in the Middle Ages, is still concentrated in the cities of Ghent, Verviers, and Tournai. Belgian lace remains one of the countries finest and most exquisite products, a celebration of fine needlework produced in cities such as Bruges, Brussels and Mechelen.
Belgium’s first stock exchange – the Bourse de Fonds Publics de Bruxelles, was opened as far back as 1801, when the country was still under French rule. In 1999, a royal decree officially established the Brussels Exchange as an integrated market operator comprised of the Belgian Futures and Options Exchange (Belfox), the Bourse de Bruxelles, and the Central Securities Depository (CIK). The following year, in an historic merger, the Brussels Exchange combined with the Paris Bourse, the Lisbon Stock Exchange and the Amsterdam Exchanges to create Euronext, the first pan-European exchange. Later, in April 2007, the New York Stock Exchange (NYSE) bought the Euronext exchange, in a $10 billion cash and shares deal, creating the world’s first transatlantic stock market called NYSE Euronext.
With a life expectancy at birth of 75.8 years for men, and 81.8 for women, Belgium has a fertility rate of 1.6 births per woman. (Human Development Index Data, 2000-05). Belgium’s social security system includes a medical system, child allowances, unemployment insurance coverage, and invalid benefits, among others. The country’s unemployment rate was 8.5% in 2006, with 2007 estimates expected at around 7.6%.
Encouragingly, the country is ranked as the world’s 20th freest economy, and 10th freest in Europe, according to the 2008 Index of Economic Freedom. With 104 banks, including over 70 foreign banks, Belgium has had one of the world’s most developed financial systems.
Yet, the ripple effects of the 2008 financial crisis that shook financial markets the world over were strongly felt in Belgium. Two of the country’s largest banks, Fortis and Dexia had to be rescued. Fortis has been a market leader in Belgium, the Netherlands and Luxembourg (Benelux countries). Apart from having a significant presence in many European economies, the Franco-Belgian bank Dexia has enjoyed a strong presence in retail banking in Belgium, Luxembourg, Slovakia and Turkey, with many subsidiaries spread across Europe, as well as other parts of the globe. In the end, the Netherlands fully nationalized Fortis, and Dexia was given a lifeline through a €6.4 billion ($9 billion) cash injection from the Belgian, French and Luxembourg governments, along with a guarantee for its new loans and deposits for at least a year. KBC, another banking and insurance group with a significant footprint across Eastern Europe, had to seek a €3.5 billion ($4.38 billion)) recapitalization by the government in the wake of the financial crisis. In addition, the government injected €1.5 billion ($1.88 billion) into cash-strapped Belgian insurer Ethias.
Problems peek on the horizon
Although Belgium’s future is promising, there are a few obstacles to overcome. Regional differences still persist in the nation’s economy – especially in the Wallonia and Flanders areas. Flanders attracts a disproportionate level of investment compared to Wallonia, where dwindling coal resources have meant a decline in steelmaking and industry. Unemployment rates are two to three times higher in Wallonia than in Flanders, though the government has been making concerted attempts to attract investments to Wallonia.
With a paucity of natural sources, Belgium has extensively developed its nuclear energy resources. Seven nuclear power plants help to meet around 57% of the country’s electric power needs. However, legislation passed in 2003 requires Belgium to close all its nuclear reactors between 2015 and 2025 citing environmental concerns. This raises the question – how will the country cope with losing almost two-fifths of its energy supply? Biomass, geothermal, and solar powered reactors are being developed, but clearly, this is a problem that is not likely to go away soon. Labor costs, which are among the highest in the OECD countries, have also emerged as an impediment to businesses in the region. With only around 40% of the low-skilled workers employed, aided by generous out-of-work benefits, the labor market has little incentive to offer.
An aging population (by 2050, one out of four citizens will be older than 65) and a relatively high unemployment rate of 7.5% in 2007 (Eurostat) remain key issues for the government to address. In the face of a rapidly aging population, the high public debt which stood at 85% in 2007 is also a matter of concern for fiscal sustainability.
Driven by high energy and food prices, the inflation rate has been accelerating over 5% on an average in 2008, compared to 1.8% in 2007. The political stalemate, stemming from the strong language divide in the region, is also likely to cloud economic prospects if not settled amicably.
And, given Belgium’s reliance on fellow EU member states for most of its trade, any slowdown in these countries is likely to significantly impinge on the country’s progress. Though it is inextricably linked to Europe, it is crucial that this tiny nation diversifies and expands its opportunities in order to boost future growth. This becomes even more critical against the backdrop of the current slowdown in the global economy.
Despite the devastation left by two World Wars, and these more recent challenges, Belgium’s economy has remained resilient. At the heart of it stands Brussels – the headquarters of the North Atlantic Treaty Organization (NATO), European Union (EU), Benelux Economic Union, Customs Cooperation Council, Eurocontrol and the Western European Union. As a true pan-European capital, Brussels encompasses the cosmopolitanism, the stability, and the resilience that Belgium offers. Host to more than 1,000 international organizations and 2,000 international corporations, and economically poised to advance its economic growth well into the 21st century, Brussels represents the intercultural, international spirit of Belgium. Brussels, the “Capital of Europe” as it is called, with its geographic location and infrastructure, ensures that Belgium will continue to serve as the preeminent point of entry for goods and services going into Europe. Although Belgium has been a country divided by language, its ability to thrive as an integrated nation is testimony to its capital’s motto: “L’Union fait la force–Eendracht maakt macht.” (Unity is powerful) .