Belgium: Stable rating, unresolved fiscal challenges
The desk views Belgium's retained AA- credit rating by S&P as a temporary stabilizer against present fiscal challenges, particularly with coalition negotiations over a crucial €10 billion savings package still at an impasse. Per the full note , the stalemate jeopardizes the timely finalization of the 2027 budget and casts doubt on achieving a deficit reduction below 5% of GDP. Given the close proximity to elections, the likelihood of compromising on fiscal policies diminishes, making the current balance precarious. Traders should be mindful of how these developments influence the Euro's performance against other currencies, particularly if gradual budget measures are not solidified soon.
What the desk is arguing
The desk interprets S&P's decision to maintain Belgium's AA- rating as insufficient reassurance amidst ongoing fiscal uncertainties. As coalition talks remain deadlocked, concerns about the 2027 budget and an inability to bring the deficit down below 5% of GDP are heightened. This precarious situation could undermine market confidence in Belgian bonds and the Euro more broadly.
Data from the commentary indicates that Belgium's deficit is not expected to stabilize effectively, with S&P noting the 2026 budget was only finalized in March 2026. This indicates ongoing structural issues within Belgium's fiscal management that could impede growth and investor confidence.
Where it sits in our coverage
The desk's analysis aligns with a consensus target recently noted for EUR/USD at 1.075, suggesting a moderate expectation for the Euro's strength against the dollar in the near term. Several firms have provided the following Dec-26 targets: - jpmorgan: 1.10 - bofa: 1.04
While the desk’s outlook leans towards the upper range, it reflects a cautious optimism in light of Belgium's fiscal hurdles that could influence the currency market trajectory, especially during election season.
How other firms see it
Several firms are aligned in their outlook on Belgian fiscal stability and its weighting on Euro valuations, particularly jpmorgan and bofa. However, firms like bofa appear more cautious about near-term performance given the fiscal deadlock.
Watch the EUR/USD movement as it closely correlates with the sentiment towards European fiscal policies, especially as developments unfold in Belgium’s coalition negotiations and budget discussions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01S&P retains Belgium's AA- rating amid fiscal challenges.
- 02€10 billion savings package negotiations are deadlocked.
- 03Deficit remains stubbornly above 5% of GDP; a credible budget is crucial.
- 04Upcoming election pressures may hinder fiscal compromises.
Market implications
Traders should monitor the EUR/USD as shifts in market confidence about Belgium's fiscal stability could lead to volatility. A failure to finalize budgetary measures or settle coalition talks may propel the Euro towards the lower end of predictive ranges.
Risks to this view
Should the coalition parties reach an agreement that alleviates current fiscal concerns and restores confidence, we could see a rapid appreciation of the Euro. Conversely, continued deadlock and public dissent could weigh on Belgium's credit ratings and pressure the Euro downward.
Articles Belgium: Stable rating, unresolved fiscal challenges Published 07:15 Belgium Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Belgium retains its AA- rating from S&P, but fiscal challenges persist. Coalition talks on a €10bn savings package remain deadlocked, putting the 2027 budget at risk. With the deficit struggling to fall below 5% of GDP, a credible deal is crucial to reassure bond markets and stabilise the debt ratio Philippe Ledent Belgian PM Bart De Wever No rating change for now As expected, S&P affirmed Belgium’s sovereign credit rating at AA-, with a stable outlook (a relief given the current budgetary challenges).
It remains the only one of the three major rating agencies to place Belgium in the double-A category. The rationale is unchanged: Belgium’s economy remains resilient and diversified, while the government’s efforts to contain the widening fiscal deficit and the Federal Debt Agency’s strategy of extending debt maturities also support the rating. Yet these factors will not be enough to bring down the deficit, which will struggle to fall below 5% of GDP, or stabilise the debt-to-GDP ratio.
In the near term, S&P doubts that the federal government can finalise its 2027 budget on time. The precedent is hardly reassuring: the 2026 budget was only finalised in March 2026. The clock is ticking That brings us back to the ongoing coalition talks.
The parties had agreed to negotiate a €10bn savings package to be implemented over the next three years, avoiding difficult budget negotiations too close to the next election campaigns. As elections approach, parties typically find it harder to compromise or concede ground on policies that are important to their voters. As we noted in our previous article , talks stalled over a proposed VAT increase, with one coalition party firmly opposed.
To break the deadlock, Prime Minister Bart De Wever put forward two proposals. First, focus initially on the 2027 budget alone. Second, agree on a fallback package of emergency measures, mainly a freeze on automatic income indexation, to take effect in 2027 if no alternative agreement is reached.
This would have helped prevent further fiscal slippage and allowed the government to enter 2027 with a budget framework, rather than having to extend the 2026 budget at the last minute. Coalition partners rejected both proposals. Last week, they returned to the negotiating table to seek agreement on the full €10bn savings package originally envisaged.
This could be read as a positive sign: a shared willingness to put public finances on a sustainable path and demonstrate that Belgium can still make decisions, in contrast to France’s partisan divisions and political uncertainty. But a deal remains elusive, with each party holding to mutually incompatible red lines. This week could therefore prove decisive.
An agreement would give Belgium a budget for 2027 and a clear fiscal roadmap for the years ahead, sending a strong signal to financial markets. If talks drag on, however, finalising the budget before year-end will become difficult, as S&P warns. Tensions could then intensify, as the prime minister has ruled out entering 2027 without a budget.
We will be watching the negotiations closely. The stakes extend beyond the budget: in an increasingly nervous bond market, government credibility is crucial. Public finances Belgium Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Philippe Ledent Senior Economist, Belgium, Luxembourg Philippe Ledent is a Senior Economist at ING Belgium. He’s responsible for economic scenario and structural research on Belgium and Luxembourg.
Philippe also teaches in French and Belgian… In this article No rating change for now The clock is ticking
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