Belgium's political deadlock sparked a downgrade in its debt on Friday, possibly forcing the country to pay higher interest rates as it nears 18 months without a formal government.
Standard & Poor's downgraded Belgium's credit rating to double-A from double-A-plus on Friday, citing concerns about funding and market pressures, as the euro zone debt crisis continues to worsen.
We need a reply that is clear and credible if we are to avoid the worst, Belgium's caretaker prime minister, Yves Leterme, told Belgian television.
The downgrade followed difficulties this week in Belgium's drawn-out attempt to form a government after nearly 18 months without one.
Elio Di Rupo, leader of the French-speaking Socialists, had been trying to form a government based on a six-party coalition. But he tendered his resignation on Monday after talks for a 2012 budget ground to a halt.
The announcement by Standard & Poor's reinforces further the necessity to finalise the 2012 budget in a very brief period, Finance Minister Didier Reynders said in a statement.
Economists said that the downgrade might force the political parties to forge an agreement over the weekend, but that even that would be too late.
Even if they have an agreement tonight we will have to pay higher interest rates due to the lower rating, said Philippe Ledent, economist at Bank Degroof.
In its statement, S&P said: We think the Belgian government's capacity to prevent an increase in general government debt, which we consider to be already at high levels, is being constrained by rapid private sector deleveraging both in Belgium and among many of Belgium's key trading partners.
Barclays Capital economist Francois Cabau pointed out that Belgium had been on a negative outlook for a year, so the announcement was not big news.
I guess they saw enough in terms of the political uncertainty, he said.
Reynders said that Belgium's credit rating was still one of the most solid in Europe, and that its heavy debt burden was already heading downwards.
(Reporting By Sebastian Moffett. Additional reporting by Alexandria Sage in Paris, editing by Jan Strupczewski)