BELGIAN STEWPOT: June 6, 2006

UNCLAS SECTION 01 OF 04 BRUSSELS 001876

SIPDIS

SIPDIS

STATE FOR EB/ESC, 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 EWWT EAIR TBIO BE
SUBJECT: BELGIAN STEWPOT: June 6, 2006


1. Introduction

2. Upbeat Forecast from Planning Office

3. Belgian Savings Rate Drops

4. Big Future for Walloon Airports

5. Antwerp Port Container Traffic Booming

6. Belgian Competitiveness Weakening
7-8. American Financial Router Expanding

9. WANTED: Pan-European Pension Funds

10. Moving Towards Labor Flexibility
11-12.Belgian Views on a EURONEXT Merger
13-14.Combating Phishing for Profit

15. Belgian Stem-cell Policy Debated



1. (U) Introduction. This Stewpot contains a number of
contradictory indicators regarding the Belgian economy.
The government's forecast for the economy is positive, but
inflation is accelerating also. The private savings rate
has dropped markedly, even though public debt has fallen
which makes financing the public deficit is easier. High
growth is expected for Walloon airports and Antwerp port
usage, and yet Belgian competitiveness is weakening
according to a recent survey. Belgians favor global stock
market mergers - as long as it impacts their access to
capital favorably. Belgian computer technology has
developed effective anti-phishing software for companies,
and yet bio-technology research remains constrained by
political debates over use of stem-cells. In sum, similar
to other European economies, Belgium presents a picture of
contradictory pressures and challenges to both government
and private sector managers.

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Upbeat Forecast by GOB Planning Office
--------------

2. (U) Belgian Federal Planning Office forecasts GDP growth
of 2.6 percent in 2006, far higher than the 1.4 percent
reached in 2005. This will surpass the Eurozone average,
expected to reach 2.1 percent GDP growth. Inflation in
Belgium will accelerate to 2.4 percent in 2006, higher than
the Eurozone average of 2 percent, but decline to an average
of 1.8 percent annually for the 2007-2011 period. Belgium's
exports of goods and services, according to the forecast,
will grow by 5.4 percent annually, as economic recovery in
key export targets of France, Germany and Netherlands
progresses. Two caveats: (1) the projection sees the
potential export market actually growing by 6.4 percent,
meaning that Belgium will be losing one percent of market
share to other countries, annually; (2) the forecast is
based on oil prices at 60+ dollars per barrel, while current
prices have now exceeded 72 dollars per barrel.

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Savings Rate Drops, Interest Rates and Purchasing Power
Blamed
--------------

3. (U) Belgians have traditionally had a high savings rate,
one of the highest in Europe before counting equity accrued
from the high percentage of home-ownership. This savings
rate has fallen from 17.2 percent in 1999 to 12.6 percent in
2005, however, now at the lowest level in 20 years, while
the Eurozone savings rate has risen to 14.7 percent.
Analysts blame the fall on the lowest long- and short-term
interest rates since the Second World War, which makes
savings marginally less attractive than consumption. The
low interest rates have nonetheless helped the GOB's
diligent public debt paydown over the past seven years. In
1993 government debt was 133 percent of GDP, and in 2006 it
will drop to about 92 percent. Rather than yielding greater
capital availability for the private sector, however, low
interest rates have turned consumers from saving towards
spending more. Low interest rates have also spurred housing
purchases, which has led to lower savings in cash. The
Walloon Institute for Sustainable Development blames a drop
in purchasing power for lower savings, as households try to
maintain living standards while prices rise. Importantly,
the impact of higher oil prices has yet to hit these
statistics.

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Big Future for Walloon Airports
--------------

4. (U) The Walloon airports of Charleroi and Liege are
likely to double both their traffic and their employment by
2015, according to a study by Arthur D. Little consultants.
Walloon authorities commissioned the study as part of
the region's redevelopment plan, which holds optimistic

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plans for generating business and employment through these
regional airorts. In 2005 Charleroi airport (which calls
itself Brussels South, lying 45 minutes south of the
capital) recorded 1.9 million passengers; traffic should
grow at 5 percent annually over the next decade, and freight
traffic will grow at over 5 percent each year. The smaller
airport in Liege, Bierset Airport, is already a hub for
package courier TNT, and should experience similar growth.
The consulting firm advises Walloon authorities to develop
non-aviation related business, low-fee aviation policies,
and more freight forwarding and cargo work in the region.
Employment could grow another 6,000 to 10,000 employees in
direct hires, and many more in indirect employment.
Brussels airport Zaventem (which transited 16 million
passengers last year) and Cologne, Germany, will be the
chief competitors to Walloon airports. The best news:
regional authorities will not have to invest to achieve
these results, as the present management companies of the
facilities should be able to invest their own funds.

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Antwerp Port Container Traffic Booming
--------------

5. (U) First quarter 2006 shipping at the Port of Antwerp is
up. The overall volume of cargo overall increased by 1.8
percent over a year ago, to 40 million tons; container
volume was sharply up, 9.3 percent over the comparable
period in 2005. Automotive shipments rose by 36 percent, as
over 217,200 cars were handled. In the first three months
of the year 3,779 ships were received. The port's new super-
container dock facilities continue to be developed by
private concessionaires Port of Singapore Authority (PSA),
Pacific & Oriental (P&O) and Mediterranean Shipping Company
(MSC). PSA alone is investing 400 million euros (US$ 516
million) in the new dock area, which ultimately will have 24
giant gantry cranes on its 5.3 kilometers of dockside.
Antwerp recently hosted the world's biggest container ship,
the Cosco Guangzhou. It is the first super-postpanamax
container ship, too large for Panama Canal transit; the
vessel was over 107,200 tons, 350 meters (1,147 feet) long,
and 140 feet wide, and carried 9,500 TEU (Twenty-foot
container Equivalent Units) of cargo.

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Belgian Competitiveness Weakening
--------------

6. (U) According to the Swiss Management Institute's annual
ranking, Belgium's competitiveness fell from 24th to 27th
among the 53 countries and 8 regions ranked. The rating
compares quality of government administration, business
climate, and infrastructure. Belgium earned its best scores
for medical infrastructure (2),education (5),technology
infrastructure (8) and importance of international trade
(9). Belgium was mid-ranked in terms of its economic and
business climate, but scored poorly on labor market (46),
work opportunity (47) and tax burden (57). Interestingly,
Belgium came in dead last in terms of encouraging the
unemployed to seek jobs. The survey ranked the US, Hong
Kong, and Singapore as the most competitive locales; the top-
ranked EU States were Denmark (5),Luxembourg (9),Finland
(10),and Netherlands (15),while Germany was ranked 26 and
France 35 out of 61 reviewed investment locales.

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American Financial Router Expanding in Belgium
-------------- -

7. (U) SWIFT, the leading interbank financial routing
service, is expanding its headquarters operations in
Belgium. The company's global turnover of 600 million euros
reflects the 2.5 billion messages it routed last year. Of
these, Belgian banks and insurers routed 148.7 million
financial transfers through SWIFT in 2005, a 19.2 percent
growth rate over 2004. Swift employs over 2,000 persons
worldwide, of which half are in Belgium, and anticipates
adding 200 more employees in 2006.


8. (U) Leonard Shrank, the Brussels-resident American
president of SWIFT, foresees a bright future for the company
in Belgium. Each year the volume of SWIFT traffic
increases, while the company continues to lower the cost of
transactions for clients. Shrank terms Belgium "the
Financial Valley," with Euroclear, Europay, Banksys, and
other major financial clearing mechanisms all present in the
country which also hosts numerous European corporate
headquarters. He intends to expand SWIFT clients to include
Microsoft, GE and Solvay; the proposed merger of the
Brussels Euronext and the NYSE (see para 9) might pump even

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more business into the SWIFT network.

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SOUGHT: Pan-European Pension Funds
--------------

9. (U) Federal Minister of Economy Marc Verwilghen has a
plan to attract both capital and financial service sector
jobs to Belgium: he plans to make Belgium the venue for
international pension fund management. Through reforms in
the fiscal framework, tax structure, and supervisory regime,
Verwilghen wants to make Belgium into the most attractive
European venue for pension fund management, targeting first
European and then global pension funds. This plan builds on
Belgium's role as a strategic logistical center for trade
and Brussels' role as the decision making center for
European policy. In an interview May 31, Verwilghen stated
he intends to structure reforms that will give Belgium a key
role in the international pension fund landscape.

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Moving Towards Labor Flexibility
--------------

10. (SBU) Aware that labor market rigidities are troubling
employers, Belgium's Federal Government is trying to reach
agreement on a set on measures to boost labor flexibility.
PM Verhofstadt seeks to announce a batch of measures before
the summer recess, and they would be implemented later
during the year. However, the two Socialist parties of the
coalition Liberal/Socialist government, continue to oppose
far-reaching deregulation of the labor market. Employers
and unions feel that the government is venturing into the
terrain traditionally reserved for the nationwide collective
bargaining negotiations which will start in the fall. The
government prefers to announce major changes on politically
sensitive subjects just prior to or during the summer
recess, however, allowing the furor to die down before
October when Parliament reconvenes. The next Council of
Ministers meeting on the subject may help decide whether the
PM can undertake the reforms employers seek, or will have to
face-off against union leadership for them.

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Belgian Views on a EURONEXT/NYSE Merger
--------------

11. (U) As one of the four countries whose stock markets
comprise the EURONEXT trading system, Belgium has definite
views regarding the merger proposals being offered by the
New York Stock Exchange (NYSE) and the Deutsche Boerse.
Federal Minister of Finance Didier Reynders stated that his
chief objective is to guarantee that Belgium's private
sector will have access to a financial market with the best
conditions. To that end, he wants to assure them a capital
market that benefits from economies of scale, the synergies
of lower cost, and the growth of cross-border capital
mobility. Reynders also praised Euronext's depth of local
experience and understanding the national market and
business community. He noted that a Euronext tie-up with
NYSE would be a first choice, as it respects the idea of a
horizontal models with multiple access points, such as
Euronext presently offers, with markets in Amsterdam,
Brussels, Paris and Lisbon. He seemed less confident that
the Deutsche Boerse's market model fit this idea.


12. (U) Belgium's federal securities regulator, the
Commission for Banking, Finance, and Insurance (CBFA)
appears to hold similar views. CBFA President Eddy
Wymeersch says he is following the merger discussions
closely, because he and the regulators in the other Euronext
countries will have a multinational collaborative role to
play in supervision of whatever results. Although Belgian
companies and federal regulators have a deep interest in
Euronext, Belgian investors are not as deeply involved.
Belgian shareholders hold just under one percent of Euronext
shares, while Netherlands investors hold 3.1 percent, France
holds 19.1 percent, and UK nationals own 28.5 percent of
Euronext shares. Although it may appear to be an inter-
European issue, US shareholders constitute 36.5 percent of
Euronext's investors, including Fidelity Management, with
4.3 percent of Euronext shares.

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Combating Phishing for Profit
--------------

13. (U) Belgium recently saw its first large-scale attempt
at phishing which targeted Visa card holders. "Phishing" is
a form of Internet fraud where individuals send phony e-
mails which appear to come from trusted sources to lure

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online customers to give up personal and financial
information. "Phishers" use customers' online identity to
plunder bank accounts and/or purchase goods and services.
Although phishing occurs mostly from Internet servers hosted
in the U.S. (about 53%),it is becoming more common in
foreign internet domains in languages like Spanish, French,
Dutch and German. In Belgium, the Federal Computer Crime
Unit (FCCU) of the police force is tasked to combat computer
crimes.


14. (U) EuroISPA, the pan-European association of EU
Internet services providers, has a secretariat in Brussels
and recently hosted a forum to discuss coordinated public-
private approaches to online fraud and phishing. The
roundtable endorsed public and private initiatives to
educate consumers about phishing and encourage industry
development of technologies to combat the threat. One new
approach developed by Vasco Data Security, a Belgian-US
company, uses a Belgian-developed technology that generates
one-time security tokens under a "Digipass" system. This
method moves away from static log-in information which can
be stolen by phishers. Vasco's technology has been bought
and implemented by around 300 banks worldwide.

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Stem Cell Policy Debated
--------------

15. (U) The Belgian Senate debated stem cell research policy
during the last week in May without notable result. The
four government coalition partners, Flemish and Francophone
Liberal and Socialist parties, are divided on the issue.
Liberal parties see it as a question of freedom for the
enterprise to pursue its own research. Socialist Health
Minister Rudy Demotte, trying to avoid turning the human
body into a source of profit, offered a policy that would
permit private labs to hold stem-cells collected for the
future treatment of the donors. Francophone Liberals would
amend this law, allowing these banks to be used by all
persons, but with priority access for the donors. Demotte
questions the ethics of not having medical resources equally
accessible to all people. Meanwhile biomedical researchers
remain stymied by the policy incertitude.

Korologos