Belgium political crisis deepens as mediator quits

BRUSSELS Fri Jul 8, 2011 4:44pm BST

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BRUSSELS (Reuters) - A mediator tasked with forming a Belgian government tendered his resignation to the king on Friday, deepening a political crisis that has lasted 13 months.

Elio Di Rupo, leader of the French-speaking socialists, was the latest politician to be charged with bridging a gap between parties in the linguistically divided country.

"The formateur has asked the king to be relieved of his duties. The king has deferred a decision," the palace said in a statement.

"Given the gravity of the situation the king wishes that all those with political responsibility in the country take a few days to reflect and evaluate the consequences of the political situation and look for a solution."

Di Rupo produced a series of policy proposals this week in a 111-page document, including 22 billion euros (19.63 billion pounds) of budgetary tightening by 2015 and greater fiscal autonomy for regions, in line with Flemish demands.

Most parties accepted the plan as the basis for renewed talks, but the Flemish separatist N-VA, the largest party in parliament after the June 2010 election, said no.

A fresh election is now widely regarded as the only solution to the political deadlock. Failure to form a new government and a public sector debt burden of about 96 percent of annual economic output have pushed up Belgium's borrowing costs.

The premium that investors demand in order to hold 10-year Belgian debt over equivalent German bunds was around 1.25 percentage points on Thursday, well above pre-crisis levels.

Belgium came under fire in financial markets late last year when Standard & Poor's warned it might cut the country's AA+ credit rating, a negative outlook matched by Fitch in May.

(Reporting by Robert-Jan Bartunek; editing by Juliane von Reppert-Bismarck and Robert Woodward)

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