The crisis in Belgium: Socio-economic impact and policy measures

1. The crisis in Belgium:Socio-economic impact and policy measures Bérengère Dupuis Vilnius, 9 May 2009

2. A severe contraction of growth • Relatively sustained growth in the course of 2008 • Brutal slow down in the last quarter: -1.7% of GDP compared to the previous quarter • Estimated growth in 2008: 1.2% of GDP (BFP) Compared to historical trend: 2.3% on average • Forecast (BFP, May 2009): 2009: -3.8% 2010: 0.0% (progressive recovery) 2011-2014: 2.3% a year on average BUT: great uncertainty

3. A severe distabilization of the banking system • Belgium: first country in Europe to be hit by the international banking crisis (September 2008) • Big Belgian or Belgo- banks with solvability problems: Fortis, Dexia, KBC, Ethias • Usual State interventions: recapitalisation, State guarantee for interbank lending, deposit guarantee raised. • More problems ahead: new intervention of the State in May to rescue KBC (State guarantee)

4. A severe distabilization of the banking system • New governement intervention planned to stabilize the banking system (isolate toxic assets) • Problems faced by a small country as Belgium:big banks bigger than the economy - banks too big to fail and too big to be rescued - big banks operate at a European level  Idea of a European emergency fund financed anticipatively by banks for recapitalisation, loan guarantees… in case of crisis.

5. First assessment on employment:signs of severe deterioration • Slow down of job creation in 2008 : +22,300 jobs (Q1), +13,500 (Q3), +2,000 (Q4) • First before firing: non-renewal of interim contracts (-11% by the end of 2008), fixed-term contracts • Temporary unemployment for blue collars (+93,000 in April 2009 compared to April 2008)  impact on employment cushioned

6. First assessment on employment:signs of severe deterioration • Unemployed workers: +54,240 May 2009 /May2008 • Slow increase end of 2008 (after 1 year of continuous decrease) • Flanders hit more severely: +35,000 in May 2009/May2008 (sensitivity to business cycle < share of industry in the economic structure) • First workers hit: men, young people, low or medium qualified, Belgians but + foreigners.

7. First assessment on employment:signs of severe deterioration • First sectors hit: automotive industry, metal industry (Arcelor-Mittal mainly), banking sector (restructurations announced)  job destruction, decrease in production, subcontractors affected. • Restructurations announced in the media: 13,706 jobs concerned up to May 2009. Automotive industry (2,913 threatened jobs), other industries (4,466 threatened jobs), financial sector (1,389 threatened jobs)

8. Forecast 2009-2014 (BFP): strong increase in unemployment In terms of unemployment, the worse is yet to come: • 2009: impact on unemployment cushioned by the important decrease in average hours worked, « only » 37,000 jobs lost. • 2010: main impact (lag), 53,000 jobs lost. • From 2012 only: back to relatively high levels of job creation (about 43,000 on average/year).

9. Forecast 2009-2014 (BFP): strong increase in unemployment • Only very slow decrease in unemployment despite recovery in job creation: - increase in working population: +185.000 (mainly immigration) - higher activity rate for women • Forecasted evolution: - 2009: +78,000 unemployed people - 2010: +94,000 unemployed people - 2011:+22,000 unemployed people (more moderate increase)

10. Forecast 2009-2014 (BFP): strong increase in unemployment • Global unemployment rate: 2009: 11.8% 2011: 15.2% (record post-WWII level) 2014: 14.5% (slow decrease starting off)   Emphasizes the need to set the priority on employment issues: • Employment/labour market policies in Belgium • Additional, coordinated answer at the European level with a focus on job preservation and support to workers.

11. Recovery plans: government and social partners • First recovery plan in December 2008: 0.4% GDP (1.3 billion euros)  • Participation of trade unions: several recovery measures negotiated by social partners in the framework of the interprofessional agreement 2009-2010 (thus financed by the government) • Lobbying from the trade unions (and employers), on several policy measures, partly successful

12. First recovery plan (December 2008) Measures for workers: focus on purchasing power and maintaining workers in employment: • IPA: lump-sum increase in wages (max. 375 euros over 2 years: meal tickets, eco-tickets) against decrease in wage costs financed by the government (% income tax kept by the firms) • Automatic indexation of wages to inflation preserved despite great pressures after high inflation in 2008. • IPA: indexation of social security benefits (pensions, unemployment benefits…)

13. First recovery plan (December 2008) • Temporary unemployment improved: higher rates of wage preservation (from 60% to 70%), higher wage ceiling. Measure asked by the trade unions. • Access to the system of temporary unemployment for workers under interim and fixed-term contracts • In case of collective firing: access to (constructive) active labour market policies to workers under 45 y.o. • 30 euros reduction on the electricity bill of households.

14. Recovery Plan “bis”(April 2009) • Beginning 2009: discussions on a possible extension of temporary unemployment to employees (asked by the employers) • Issue left to the social partners, but negotiations failed (fear of the trade-union: cost of the measure in case of exagerated use by employers). • Government leads the discussion but lobbying from the trade unions to make their voice heard, result acceptable.

15. Recovery Plan “bis”(April 2009) • Government presents three « crisis measures »: temporary (1 July - 31 December 2009) with possible extension in 2010. • Again, objective = avoid as much as possible the firing of workers because of the crisis.

16. Recovery Plan “bis”(April 2009) • Temporary reduction of working hours in a firm by 20 to 25% with reduction in social security contributions (private/public, blue collars/ employees) • Voluntary, temporary switch from full-time to part-time (private firms hit by the crisis, blue collars/employees) • Work contract totally or partially suspended because of insufficiant amount of work, for employees only (not temporary unemployment but similar measure)

17. The cost of the crisis • Cost of the crisis: recovery plans, rescue plans for banks, automatic stabilizers (loss of revenues from taxes and increase in unemployment benefits) • IMF forecast (April 2009): Public deficit: 2009: -4.5% 2010: -6.1% Public debt: 2009: 95.7% (7% banks rescue) 2010: 100.9%   PLUS still in sight: population ageing.

18. Question: who is going to pay? • The workers? Twice: (1) job and wage losses, (2) tax increases and/or reduced State spending on public services. • The banks? Contribution after the system is stabilized? Idea for future crisis: European emergency fund • Increased tax revenues: fiscal fraud /evasion, increased tax on savings income, green taxation… Important: use of public money under conditionality and state control.

19. Rate of trade union membership in Belgium • Active population : 51% • Non active population : 87% • Total population: 65% • Stable evolution (51-53% of active population since 1980, slow decrease but not in number) • 3 trade unions :   CSC (catholic): 1.700.000 workers FGTB (socialist): 1.200.000 workers CGSLB (liberal): 150.000 workers