Belgium forming new government after downgrade
Earlier this weekend, Belgium was downgraded by Standard & Poor’s to AA from AA+. The report cited Belgium’s interconnectedness to external factors and the bailout of Dexia, which would increase the country’s debt by 1.1% of GDP. The report also cited their concerns about the inability of Belgium’s government to respond, with their failure to form a government since April 2010 as the most glaring example. The downgrade eventually pressured the different parties to reach an agreement on the 2012 budget, which will decrease the budget deficit to 2.8% of GDP through the decrease of tax expenditures. The budget agreement also opens the way to the formation of a new government.
IMF offering $800bn to Italy
In other European news, Italy is being offered up to €600bn assistance from the International Monetary Fund. The interest rate would be 4% to 5%. The European Financial Stability Facility, with a lending capacity of up €440bn, has €200bn left of capacity. Efforts are underway to raise the facility to €1tn, though some observers estimate that they will only be able to raise €750bn. As such, markets welcomed the IMF news with a rally in the Euro (up 57 bps intraday against the dollar as of this writing).