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. -------------- 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. -------------- 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. -------------- 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 BRUSSELS 00001876 002 OF 004 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. -------------- 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. -------------- 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. -------------- - 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 BRUSSELS 00001876 003 OF 004 more business into the SWIFT network. -------------- 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. -------------- 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. -------------- 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. -------------- 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 BRUSSELS 00001876 004 OF 004 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. -------------- 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