VZCZCXRO7345
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHBS #1001/01 1831450
ZNR UUUUU ZZH
R 011450Z JUL 08
FM AMEMBASSY BRUSSELS
TO RUEHC/SECSTATE WASHDC 7644
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 BRUSSELS 001001 
 
SIPDIS 
 
STATE FOR EB/OIA, EB/TPP/IPE AND EUR/WE 
TREASURY FOR OASIA/ICN - ATUKORALA 
USDOC FOR 4212/OECA/JLEVINE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB BE
SUBJECT: BRUSSELS BILAT BREW: JULY 1, 2008 
 
¶1.  Summary:  This issue of the Brussels Bilat Brew covers a 
review of cost-of-living adjustment and social benefits in 
Belgium as well as the desire for increased competition in 
the food, power distribution and telecom sectors in order to 
counter Belgium's rising inflation rates.  Farmers, taxi 
drivers and members of truckers' unions hit the streets to 
protest the rising cost of living.  The telecom industry in 
Flanders is seeing its share of competition between Belgacom 
and Telenet, who are bidding for control of Interkabel. 
Finally, the EU Commission has released its review of the 
Belgian budgetary predictions for 2008 and 2009.  End summary. 
 
--------------------------------------- 
Automatic COLA - Status quo or Change? 
--------------------------------------- 
 
¶2.  With eroding purchasing power and pressure on the 
national budget, Belgium's automatic cost-of-living 
adjustment of wages and social benefits is under review. 
Belgian employers are required to provide automatic 
cost-of-living increases based on what is called the health 
index.  The index essentially reflects inflation minus food 
and fuel costs.  This year the COLA is based on 2.1 percent 
health index price rise compared with an overall inflation 
rate of 5.2 percent.  Parliament recently pressed Prime 
Minister Leterme on the future of this program.  Leterme 
argued that required COLAs inject 1 billion euro ($1.57 
billion) annually to shore up disposable income.   Facing 
questions on covering spiraling fuel costs, Leterme added 
that no government could fully compensate for energy 
increases.  In a meeting with Ambassador Fox, Minister of 
Enterprise and Economy VanQuickenborne echoed Leterme's 
support of the existing COLA system.  National Bank Governor 
Guy Quaden struck a slightly different tone, arguing that a 
better system would differentiate the COLA between lower and 
higher wage earners.  He called for cents, not percents, for 
the higher paid. The future of the automatic COLA will again 
be a central theme of bi-ennial negotiations between 
employers and unions this fall on the nationwide collective 
bargaining agreement for the private sector for 2009-2010. 
 
------------------------------------ 
More Competition in Belgium's Future 
------------------------------------ 
 
¶3.  Minister of Enterprise, Economy, and Simplification of 
Administration Vincent VanQuickenborne told Ambassador Fox 
and emboff that he seeks broader competition in the food, 
power distribution, and telecom sectors.  Soon he will 
auction spectrum for a fourth cellular phone provider, and he 
emphasized he would do it for more if more providers were 
interested in the Belgian market.  With inflation at 5.2 
percent, VanQuickenborne wants to tackle food and fuel 
sectors.  Belgium's inflation is higher than that of its 
neighbors.  VanQuickenborne observed that small shop owners 
dominate current policy.  VanQuickenborne would like to end 
restrictions on sales (only held for one month each twice a 
year) and on Sunday opening hours (all but a few stores must 
close on Sunday).  The minister would like to see an end to 
restrictions on prices as well.  Currently stores are not 
permitted to sell any item below cost, even to move a product 
that might expire soon.  In the electricity sector, 
VanQuickenborne echoed his attacks in the press on the high 
distribution taxes communities place on the distribution of 
electricity and natural gas. 
 
 
--------------------- 
Unions in the Streets 
--------------------- 
 
¶4.  The high cost of living brought Belgians to the streets. 
Farmers, taxi drivers, and truckers blocked the major 
entryways to Brussels and tied up traffic in the center of 
town to protest rising fuel costs, and, in the case of the 
farmers, declining net revenues for them.  Belgian food 
shoppers are paying more for items in their regular shopping 
trips and may be changing their buying habits.  Smaller 
cities Namur, Arlon, and Hasselt saw protests as well. 
 
--------------------------------------- 
Interkabel: Telenet Maintains its Offer 
--------------------------------------- 
 
¶5.  Belgacom, the national phone company, is prepared to 
morph itself into "cable" in order to counter its competition 
in Flanders.  Telenet, the main cable and internet provider 
 
BRUSSELS 00001001  002 OF 002 
 
 
in Flanders is competing with Belgacom for Interkabel, the 
inter-municipal satellite company (Integan, Interelectra, 
WVEM and PBE), that represents one-third of the cable 
industry in Flanders.  Just 24 hours earlier, Belgacom 
announced a non-binding counter-offer of 420 million Euros, 
70 million dollars larger than an earlier offer made by 
Telenet.  It is unclear how the four companies that make up 
Interkabel will react to the Belgacom offer.  At the end of 
last year, they concluded a project agreement with Telenet 
allowing Telenet to take over their television broadcasting 
clients by the end of June 2008.  Meanwhile, the Belgian 
government plans to hire a headhunter to replace Belgacom CEO 
Bellens whose term expires at the end of June.  Bellens' 
board put him in a minority position, accusing him of not 
being aggressive enough regarding foreign takeovers. 
 
-------------------------------- 
Employment Update - Budget Blues 
-------------------------------- 
 
¶6.  Bad news for the Belgian government: the European 
Commission estimates that Belgian objectives for a balanced 
budget in 2008 and 2009 will not happen because GOB 
assumptions for employment and inflation are overly 
optimistic.  Says the European Commission:  "The budget 
result could be worse than what is projected.  The changes in 
salaries and increase in consumption could have led to an 
overestimation of tax revenue," reports the European 
executive for whom the "supplementary measures" will be 
necessary in order to reach the budget goal.  For the 
Commission, it's the long-term budget impact of the aging 
population, including pensions and health care, that 
threatens the realization of the objectives.  Recent reports 
show the so-called Silver Funds to beef up pensions for the 
aging population are inadequate.  The retirement age in 
Belgian is one of the lowest in Europe, and citizens resist a 
change.  Looking to 2011, Belgians want to continue the rapid 
reduction of the Belgian public debt, which fell to 85 
percent of GNP in 2007.  The goal is to reduce the debt ratio 
to 71 percent by 2011.  Speaking of the budget, the Belgian 
Employers Federation claims that Belgium has 72,000 civil 
servants in surplus compared to the EU average of civil 
service employment (not counting teachers). 
 
FOX 
.