Belgians Get Cold Feet As Bailout Queen Dexia Drags Them Toward Abyss

Bailout queen Dexia, the Franco-Belgian mega-bank that collapsed twice and was bailed out twice within three years—in 2008 and last October—is turning into a nightmare for the tiny Kingdom of Belgium and its taxpayers.

As part of the second bailout, Belgium guaranteed 60.5% of €90 billion in debt—€54.5 billion, or 14% of Belgium’s GDP. France and Luxembourg guaranteed the remainder. Belgium then nationalized the local subsidiary, Dexia Banque Belgique (DBB) for €4 billion and assumed whatever toxic assets were fouling up the air inside. Belgian bailout manna also rained on other worthy banks, including BNP Paribas and Fortis Banque. In total, Belgium guaranteed €138 billion in debt, 35% of its GDP! In addition, it injected €15.7 billion in capital and €8.6 billion in loans into the financial sector. For a total exposure of €162 billion—gasp—41% of its GDP!

Belgians have a love-hate relationship with the left-over parts of Dexia. They employ 10,000 Belgians, but they’re also threatening to pull the country into a financial abyss. And now bad news for taxpayers is piling up. Dexia SA released its fourth-quarter results today: a monumental loss of €11.6 billion ($15.3 billion), which includes write-downs of its Greek bonds and other crappy assets, plus hefty operating losses. Of that loss, Belgian taxpayers will eat 60.5%. At the end of December, it owed €48 billion on its emergency lines of credit with central banks.

On March 1, DBB will report similarly horrid results, impacted by the usual suspects: operating losses and write-downs—among them Greek bonds, assets in its legacy portfolio, derivative products, and the liquidation of its subsidiary Holding Communal. It is still dependent on the ECB for funding. And now, the newly installed administrators found out that, despite state-ownership and the amount of money Belgium plowed into it, it is still bleeding deposits at a rate of €20 million a week. The run on the bank continues. Layoffs will become inevitable. And more capital may have to be injected.

But resistance is mounting in Belgium. Today, after the losses were announced, the opposition party Ecolo came out swinging. It accused the then outgoing federal government of having been lackadaisical when it negotiated the bailout deal and Belgium’s 60.5% share of the guarantees. In a statement released today, Representatives Meyrem Almaci and Georges Gilkinet demanded that the federal government renegotiate these guarantees—in light of the dangers they pose for Belgium’s public finances, and in light of the austerity measures foisted on the people because of the bailouts. “In the case of Dexia, it is time that the interests of the Belgian citizens are finally taken into account,” the statement said.

And there is a legal challenge underway. ATTAC (Association pour la Taxation des Transactions Financière et pour l’Action Citoyenne) and CADTM (Committee for the Abolition of Third World Debt) appealed the Royal Decree of October 18 that had granted Dexia the guarantees. “Several democratic principles were violated in this case,” said their lawyer Olivier Stein. In particular, the federal parliament never voted on the guarantees though it could have. By comparison, the French parliament passed a law allowing the guarantees on the French side.

Alas, yesterday, Dexia, which would die a rapid and natural death without the guarantees, responded. It filed an application with the Council of State to intervene in the case in support of the Belgian government. Goal: get the judges to reject the appeal. The case is expected to be argued before the Supreme Court in several months.

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