VZCZCXYZ0001
RR RUEHWEB

DE RUEHBS #3403/01 2791612
ZNR UUUUU ZZH
R 061612Z OCT 06
FM AMEMBASSY BRUSSELS
TO RUEHC/SECSTATE WASHDC 3284
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNMEN/EU MEMBER STATES

UNCLAS BRUSSELS 003403 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/OIA, EUR/ERA AND EUR/UBI 
TREASURY FOR OASIA/ICN - ATUKORALA 
USDOC FOR 3133/USFCS/OIO/EUR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EIND ELTN BE
SUBJECT:  BELGIAN STEWPOT: October 5, 2006 
 
Ref: (A) Brussels 3196   (B) Brussels 2926 
 
1-2. Update on the Budget Mess 
¶3. Belgian Competitiveness Stagnates 
¶4.   Belgian Exception Recognized by EU Court 
¶5.   EU Says Belgian Tax Law Discriminates 
6-7. Off-shoring Risk to Belgium Analyzed 
¶8.   A Home Grown National Dish 
¶9. PC Linguistics on Belgian Trains 
¶10. The Scent of Wine On-Line? 
 
----------------------------- 
Update on the Budget Mess 
----------------------------- 
¶1. (U) Progress on rebalancing Belgium?s 2006 budget and proposing 
an 
FY 2007 budget has been slowed by the municipal elections to be held 
 
October 8.  The government claimed remarkably quick progress in 
filling the holes created by an accounting snafu and over-estimation 
 
of tax revenues (ref A), but the evidence of this has not been seen 
 
in print yet.  The government claims a buffer of 100 million euros 
from prepayment of corporate taxes due later in the year. Reportedly 
 
the sale of a block of 67 government buildings to a consortium led 
by 
Belgian real estate developer Confinimmo would bring in another 593 
 
million euros, but the plan has been challenged on legal grounds. 
An 
extraordinary dividend from former telephone monopoly Belgacom of 50 
 
million euros will also help.  This would leave only a 350 million 
euro gap to cover. 
 
¶2. (U) Prime Minister Verhofstadt has announced due to the 
government?s preoccupation with the coming municipal elections the 
compiling of the FY2007 budget will take more time.  His scheduled 
?state of the nation? address to the Federal parliament, due to 
reconvene on October 10, will be delayed until October 17.  Rumors 
contend that one option being considered to close the 4.5 billion 
euro gap looming in the 2007 budget would be granting the government 
 
access the massive fund being held in escrow by Synatom, the 
Electrabel/Suez affiliate responsible for future decommissioning of 
 
Belgium?s operating nuclear power plants.  This 4 billion euro 
account, fed by Electrabel energy sales revenue, has until now been 
 
considered sacrosanct, and may be an uphill battle for the coalition 
 
government. 
 
--------------------------------- 
Belgian Competitiveness Stagnates 
--------------------------------- 
¶3. (U) World Economic Forum study released in September ranked 
Belgium twentieth out of 125 in global competitiveness, the same as 
 
last year.  The World Competitiveness Index is a mix of objective 
data and subjective responses by 11,000 CEOs.  Belgium scored well 
on 
infrastructure, higher education, business sophistication, and 
innovation criteria, but ranked poorly in terms of taxes, labor 
market flexibility, and inefficient government bureaucracy. 
Ironically, the poor scores are all related to public policy issues, 
 
while the high scores are not necessarily government determined. 
The 
mixed conclusion: the competitiveness of Belgian companies is good, 
 
despite the handicaps of the environment they must work in. 
 
---------------------------------------- 
Belgian Exception Recognized by EU Court 
---------------------------------------- 
¶4. (U) On September 28 the EU?s highest court ruled against state 
control of former government monopoly enterprises through use of a 
?golden share? to guard management control.  The European 
Commission, 
which regulates takeovers within the EU, had argued that the 
government's so-called golden shares made investments in the 
companies less attractive.  Such golden shares ?are an unjustified 
restriction likely to deter investors of other member states from 
investing? in the two Dutch enterprises under scrutiny.  The Court 
acknowledged a Belgian exception, however, regarding the firms 
Distrigaz SA and Societe Nationale de Transport par Canalisations; 
the court judged that golden shares were justified in those cases 
because they helped protect energy supplies in the event of a crisis 
 
and to provide for the public welfare.  Apparently, golden shares 
have to be of legitimate and motivating public interest to qualify. 
 
------------------------------------- 
EU Says Belgian Tax Law Discriminates 
------------------------------------- 
¶5. (U) On October 3 the advocate general of the European Court of 
Justice declared that Belgium?s fiscal regime regarding pensions was 
 
not legal under EU law.  The Belgian tax law permits the 
deductibility of employer contributions for employee insurance only 
 
if these contributions are made to an insurance or pension fund 
established in Belgium.  The GOB also imposes this condition on 
long- 
term savings by way of where the returns are held.  In both 
situations, the ECJ official considered the Belgian action contrary 
 
to the free circulation of labor capital in the EU, and 
discriminated 
against the nationality of the pension fund.  No comment was 
available from the Ministry of Finance. 
 
------------------------------------ 
Off-shoring Risk to Belgium Analyzed 
------------------------------------ 
¶6. (U) A Belgian consultant to US consulting firm A.T. Kearney has 
produced a study analyzing the risks to Belgium from the growth of 
?off-shoring? ? the phenomenon of moving parts of business 
production 
and management out of the country to take advantage of more 
competitive foreign workplaces.  Off-shoring has been viewed by 
unions as the major drawback to globalization.  According to the 
consultant, in Belgium off-shoring has already started in the 
financial services sector; this sector is easily transferred because 
 
it is highly computerized, and the near zero cost of sending and 
handling data abroad also facilitates accounting, human resources, 
and other management functions relocation.  Aspects of Belgium?s 
chemical and consumer goods sectors ? particularly automobiles ? are 
 
also at risk, the consultant notes.  (Comment: Given the size and 
importance of the chemical sector and vehicle production sector in 
Belgium, this assessment could create deep concern. End Comment.) 
 
¶7. (U) Less likely to be off-shored are utilities and public 
services.  Belgium?s strengths in pharmaceuticals and new 
technologies make them natural poles around which to attract new 
business from overseas; know-how and a deep research knowledge base 
 
are difficult to transfer abroad.  Finland?s cell phone technology 
(centered on Nokia) is the example to emulate.  Belgium?s logistical 
 
advantages also cannot be duplicated by moving to Asia or other 
low- 
wage venues. 
 
--------------------------- 
A Home Grown National Dish 
--------------------------- 
¶8. (U) While Belgium?s national dish ?moules-frites? has been 
made with Dutch mussels for years, Flanders is now producing 
homegrown mussels again.  A 7-year project to harvest Flemish 
mussels was hailed a success after the first batch went on sale at 
Ostend fish market in late August.  Four tons of mussels are grown 
in nets five kilometers off the coast of Nieuwpoort in West 
Flanders.  The first Flemish mussel harvest was planned for 2005, 
but slow paperwork caused the mussels to grow so big that they 
broke the nets and could not be harvested.  Other Flemish growers 
are expected to start up as demand increases.  A Wind Farm (offshore 
 
windmills) to be constructed on Thornton Bank off the Flemish coast 
 
will shelter mussel nets from damage by passing ships and storms. 
In 
time domestic production is expected to cover half Belgian mussel 
consumption. 
 
-------------------------------- 
PC Linguistics on Belgian Trains 
-------------------------------- 
¶9. (U) Linguistic guidelines of the Belgian Railways (SNCB/NMBS) 
have 
been announced that take into account the country?s French/Flemish 
language tensions.  Conductor announcements of destinations or 
stations must be made in the language of the region where it is 
located, except for the 54 Flemish and 39 Walloon stations that have 
 
two official names.  For those, both need to be announced, with the 
 
relevant regional language name used first.  For example, the 
Walloon 
city of Mons must also be announced as Bergen.  And in bilingual 
Brussels?  The stations in more Flemish-inclined communes start with 
 
Dutch, and vice versa for the Walloon French-inclined communes.  One 
 
station is missing from the list:  Brussels Central.  Here, 
announcements will start in Dutch in even-numbered years and French 
 
in odd-numbered ones.  Comment: Post expects printed train 
itineraries to sell briskly in the next year. 
 
---------------------- 
Scent of Wine on-Line? 
---------------------- 
¶10. (U) Delhaize, one of Belgium?s and one of America?s leading food 
 
purveyors (ref B), plans to launch a series of winetasting courses. 
 
In conjunction with Belgacom internet affiliate Skynet, fifteen 
different interactive courses on oenology will be offered free on- 
line at the Delhaize website.  It appears to be a wise investment 
for 
the food and wine marketer: in 2005 Delhaize sold 43 million bottles 
 
of wine for a total of 200 million euros, giving an average price 
per 
bottle of only 4.65 euros (USD 6.00); raising the demand for higher 
 
quality, pricier wine could profit the retailer handsomely. 
 
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