What these “stress tests” are all about is an auditing exercise whereby banks’ balance-sheets are subjected to a standard scenario positing a business downturn, meaning theoretically that more people would not be able to pay back their loans, there would be lesser demand for new loans, and the like, and so you see how the bank would do in such a situation – first of all whether it would even stay solvent and so survive (at least without receiving some sort of state aid). And, as stated, both these Belgian banks already did the exercise and came through it with OK results. But the whistles have sounded and the competitors are being directed back to their starting-blocks to do it all again, and for a good reason: those previous stress tests did not include checking for any situation in which government bonds held by the banks might not be fully repaid. That’s rather an important omission: we’re talking in particular Southern European (or PIGS, if you like) government bonds here, and KBC Bank alone has €60 billion worth of them in its portfolio.

How then could anyone have considered the previous stress tests, which did not account for those public obligations, anything but a waste of time? Well, many cynics (or call them analysts) have felt that the real purpose of such tests was in the first place as a propaganda exercise meant to return a comforting “All OK!” for each such bank tested to calm investors’ and markets’ fears. This whole “stress test” idea was taken over in the first place from the American financial authorities, who performed them on the big American banks in spring-summer of last year, and ongoing coverage particularly from the Naked Capitalism financial weblog not only blew the whistle on that American exercise but also has found serious flaws in the European stress tests happening now. In fact a major complaint (also put forward in a related financial blog here) about the validity of the European tests was their alleged failure to take into account such sovereign risk.

Broens’ piece shows that that at least is not happening in Belgium, although he doesn’t say why, like who decided to make these exercises a bit more bona fide and call back KBC and Dexia to do them “right.” His language is in the passive tense – “in the meantime it has been decided to expand the test” – although one first guess would have to be the Belgian financial authorities.

UPDATE: A new entry on Naked Capitalism tacitly concedes that these European “stress tests” will in fact include banks’ exposure to sovereign debt in their calculations. It then goes on to sketch the great worry resulting from that: What happens when these more-honest tests reveal that too many banks in fact stand in need of more capital, possibly from governments which in many cases are no longer in a position to provide the same?

                          

They don’t intend to be alone there. Rather, the two (Bernie McDaid and Olan Home, who also challenged Pope Benedict XVI on priest sexual abuse during the latter’s visit to the US in 2008) have been busy recruiting other Catholic lay organizations to join them. Between those worshippers, other sexual-abuse victims, and reform-minded individuals showing up (including, hopefully, current priests), they expect to be leading a 50,000-strong demonstration seeking to show “that their Church is in terrible trouble.” McDaid and Home will also be pushing their own four-point reform plan:

1. Establish an independent commission to supervise how the Vatican deals with priest sexual abuse;
   
2. Screen seminarians, priests, and bishops effectively against this sort of behavior;

3. Involve lay influence in the selection of bishops;
4. Include mandatory instruction about sexual abuse at every seminary’s program of study.

You might be asking: “I know that these guys need some time to get the word out, but why are they waiting all the way until next October 31?” No, it has nothing to do with Halloween; October 31 is also historically famous as the day when, back in 1517, Martin Luther nailed his famous 95 Theses to the door of the church in Wittenberg, Germany, and so effectively kicked off the Protestant Reformation.

                          

From there the story proceeded just as it always does when a company gets a new owner, especially in the case of a failing firm where that new owner is being counted on to come in and rescue its fortunes. Clearly, drastic cuts have to be made – but who will bear them?

The answer has always been pretty obvious, but it seems that “De Nile” is not just a river in Egypt, somehow it also flows through Flanders. Opel’s factory located in the harbor area in northern Antwerp was always the leading candidate to draw the short straw and face closure as part of any attempt to reorganize the company. The leading negotiator for General Motors – one John Smith – openly said as much: “In our plans Opel Antwerp is superfluous.” Nonetheless, it’s amusing to read in coverage of the new Magna deal in the Flemish business newspaper De Tijd about the refusal of many parties still to accept that reality. After all, points out Luc van Grinsven, spokesman for the ACV union that represents most of the plant’s workers, that’s only a GM official saying “superfluous,” not anyone representing Magna, i.e. the actual new owners. “The exact consequences of the take-over are not yet clear,” claims Van Grinsven. “But GM after the take-over has no more authority.” And Flemish regional president Kris Peeters is still clinging to a letter he received from Magna at the end of July, assuring him that the company intended to investigate further what possibilities there may be for the future of the plant.

Ironically, coverage in the general-interest daily De Morgen is more straightforward: Death-struggle of Opel Antwerp begins. First sentence: “The Opel factory in Antwerp will surely close.” For Magna has made it clear that it will need to eliminate some 10,000 of the 50,000 total European jobs that the company provides, and in this light all of Antwerp’s 2,600 seem doomed.

Back in De Tijd, commentator Jean Vanempten is also more ready to throw in the towel for Antwerp than his (uncredited) reporter-colleague (Too fatalistic). Of course Opel Amsterdam could never survive, it was easy to tell. Everybody knows that production overcapacity has to be cut, and the Antwerp plant is the concern’s smallest. Plus, it was never even assigned any new model of car to start producing; apparently the facility’s managers were lately frantically going around the company’s various offices in search of a new model to produce.

Vanempten is also ready to start assigning blame for this economic disaster (in which he claims up to 5,000 jobs will be lost, from the direct and indirect economic effects). His main target is the Flemish regional government, which he claims was ineffective throughout the negotiations about Opel’s future:

At no single moment was the Flemish government taken serious by any of the parties in this dossier. The excursions to the US were mainly good for the eyes of its own electorate. For in the run-up to the Flemish election on 7 June it was naturally important to show oneself as concerned and give the appearance of efficacy.

Well, that Flemish government did also offer €500 million in support to that Antwerp plant if Opel would keep it open. But here we simply have yet another case of wishful thinking: the German government pledged €4.5 billion. And it turns out that Magna plans to keep all four German plants operating. Coincidence?

Admittedly, under the EU that sort of bidding-to-keep jobs is something that simply is not supposed to happen. But these remain exceptional economic times. A follow-up article in De Tijd reports on Flemish president Peeter’s visit today to EU Industry commissioner Günter Verheugen, of which Peeters said to the press “I had more than [just] the impression that Commissioner Verheugen shares our position that simple economic parameters should be decisive. The Comission will not allow political parameters to be decisive.” But it’s quite possible that this is just the latest instance of Flemish wishful thinking.

UPDATE: OK, you wanted definitive word from a Magna spokesperson? Here you are: the leading Flemish newspaper De Standaard reports that no less than Magna chief Siegried Wolf announced – in a speech at the Frankfurt Autoshow, which opens its doors tomorrow, 17 September – that his consortium has in mind closing but one plant as it takes over Opel, and that is the one in Antwerp. In total, some 10,500 Europan jobs will have to disappear, so that means in Germany, too, and he expects the car company to return to profitability by 2015.

                          

But delving into the news and commentary on both sides of the Belgian divide (i.e. Flemish/Dutch vs.Walloon/French) provides a more nuanced picture of the situation, as you would expect. For one thing, the Economist’s concern, “Time to dissolve Belgium?”, seems not to be the question at the forefront of Belgian political minds right now; rather, it is “What do we do now?” As the authoritative Flemish newspaper De Standaard reports (King sets confederate steps), that is a question that it is the immediate task of King Albert to decide – and he is expected to take until the end of this week, at least, to do that, in the meantime holding consultations like crazy with the country’s various political and societal actors. (One of the main assertions of the front-page De Standaard article is that the pattern of whom the king has consulted with so far suggests he is leaning towards finding a solution that would make Belgium a somewhat looser-knit confederation.)

Leterme @ Wit’s End

Theoretically, the king could simply decide to refuse Leterme’s resignation, but that’s really not the sort of thing you do except in a grave emergency, one that usually involves war in some way. The text of his resignation statement makes his position clear that he does not know what else it is that he could do: “It turns out that the opposing visions between the communities over the needed new balance in our state institutions cannot be bridged today. This indicates that the model for consultations at the federal level has reached its limits.” It’s also not clear that much of the country would welcome his staying on as Prime Minister, in any case. Commentators in the French-language papers are not pleased with him at all. In his editorial in Le Soir (A Country on the Edge of the Abyss), Luc Delfosse dismisses Leterme as “the little man from Ypres [a city in West Flanders]” and accuses him of selling out to his Flemish coalition partner, the N-VA (Nieuw Vlaams Alliantie, to gain power at the cost of giving full rein to the N-VA’s more stubborn Flemish-nationalistic political stance. (The Dutch-language financial newspaper De Tijd concurs in its lead article on the crisis, concluding from its analysis that Leterme indeed chose maintaining his party’s coalition with the N-VA over maintaining the government.) And in La Libre Belgique Michel Konen writes (Yves Leterme Leaves Without Glory) that “it is the nerves of Yves Leterme that ended up cracking.” There is no reason to make such a big deal of failing to meet the 15 July deadline, but, then again, maybe it’s good to finally see the back of the Prime Minister anyway: for the last 13 months of his time in office he has accomplished precious little, and has certainly shown absolutely none of the political courage that he breezily asserted he would bring to the job when he was originally approved for it.

Big Deal Deadline

Indeed, there does seem to be something to the point that, pace that Economist article, 15 July did not need to have such a cataclysmic significance. Yes, a new plan for federal power-sharing was supposed to be presented by then and, yes, it was nowhere close when the time came. But there was no crying need to make such a big deal out of it – that deadline was essentially of Leterme’s own making (and I don’t think I’m going way overboard if I speculate that missing deadlines for completed action like this is pretty much par for the course in Belgian politics). De Standaard has an excellent analysis piece on this (What Brought Yves Leterme Down?), which even terms the resignation “surprising,” as if no one really expected that Leterme would plunge the country again into crisis over a mere missed deadline. After all, the article points out, it had been pretty obvious for a long time that it was not going to be met, but there had been no real sign that Leterme was going to react like this – people probably just complacently assumed that he would not go so far as to resign. So why did he? Well, again, it was Leterme’s own deadline, and it turned out that he was serious about it, mainly (one can speculate) as a prod to get the other side (i.e. French-speaking/Walloon) to finally make some concessions to move talks forward toward “re-balancing” the Belgian federal government (code for “tipping the balance of power a bit more towards Flanders”). But it wasn’t working; the De Standaard article reports that the Walloon side seemed resigned to the stalled talks and looking forward to the next federal-level elections in 2009 in hopes of coming up with a new political alignment that would enable forward progress. This attitude was unacceptable to Leterme – either to him and/or to his coalition partner, the N-VA, which indeed has a more militant attitude about gaining power concessions for Flanders and gaining them soon. So you could say that Leterme did indeed choose maintaining his CD&V party’s coalition relationship with the N-VA over maintaining the government; or you could say that he had tried “brinksmanship” tactics – setting a scary deadline – to finally get some progress, the other side had called his bluff, and so he felt obliged to take the country over the brink.

In any event, whether 15 July really is supposed to mean anything or not, 21 July definitely does: that is the Belgian National Holiday (think the American 4th of July, or the French Bastille Day). How embarrassing to be in the middle of a government crisis that threatens to split your country apart on your National Day! Could that prospect move King Albert to quicken his deliberations and find some solution? More to the point, what will the streets of Brussels look like next Monday? The last couple of years the Belgian National Day has been marked by impressive solidarity demonstrations, especially in Brussels, of citizens marching to show their determination to keep the Belgian state whole. Will any more of those materialize next Monday in the shadow of this latest crisis?

Hitting Belgian Pocketbooks

De Tijd being the good business newspaper that it is, it also devotes an article to analyzing what the paralysis in the government means in practical terms for the Belgian electorate (What does the crisis mean for your pocketbook?). Quite a lot, it seems, mainly because all this hullaballoo is unfortunately occurring just when, in an ideal world, the government would instead presumably be devoting its energies to shielding Belgians from an oncoming storm of economic pain (including recent 5,8% inflation which the newspaper terms a “record” – but that can’t be right). Yes, the Belgian authorities have managed within the thirteen-month life of the latest government to divert themselves from inter-communal bickering enough to move forward on a number of economic measures, including raising pensions and even agreeing on a whole “social-economic program” for the period 2009-2011. The problem is that many of these still need to go through the final step of being formally approved by the legislature. Now that the government is once more in danger of falling – the PM has submitted his resignation, after all, even if that has not (yet) been accepted by the King – there is the real danger that these measures will have to start all over again with the legislative process.

Finally, indulge me for a moment as I bring into the record a perspective on this whole affair from outside Belgium, if only from its neighbor to the North, the Netherlands. Naturally, the Dutch are following Belgian developments with close attention, and the leading newspaper NRC Handelsblad even devotes an in-house blog to the situation there, whose latest entry is Navel-Staring in Belgium.

Unfortunately, the blog is not by-lined; but whoever is writing it does hope that Belgium could come up with some way to keep itself together as one country: “Seen from the North, Belgium is an interesting, prosperous, diverse and cosmopolitan land. As a cultural-economic twin-state it has more dimensions and options than the homogeneous Netherlands.” A split would simply result in two more islands of homogeneity, Dutch and French. More practically, as much as the Flemings and Walloons may want to claim they don’t need each other, in actual fact they are quite deeply intertwined economically, and wrenching that apart will inevitably carry high costs. And these precisely at a time when the winds of economic distress are rising! It is hardly a formula for the sort of peaceful “velvet divorce” (on the pattern of the split at the beginning of 1993 between the Czech Republic and Slovakia, of course) that some in the country may think is achievable. Any split could turn out to be more violent than people may expect.

                          

About that new Belgian governing coalition, La Derniere Heure reports (in an article that also lists all the new ministers, for those interested) that although the new government will be headed just like the last one was by Guy Verhofstad, this new one will be the “violet” government whereas the last was called “arch-into-the-sky” (arc-en-ciel). These names are more than mere whimsy, as they reflect the political make-up and nature of the given government. For example, the Netherlands had its own “violet” government (in Dutch, paars) in the seven years to 2002, and that paars label was derived from its composition out of a combination of left-wing labor (in the form of the PvdA, traditional color red) and the conservative VVD (traditional color blue) – plus the smaller party D66, but we can neglect that here unless you want to add their traditional yellow color into the mix. It might be an interesting assignment – for when I’m back behind my own computer, say, in a few weeks’ time – to look into why the new Belgian government is also called paars/violet, and especially why the last government was called “arch-into-the-sky.”

In point of fact, LDH’s sister French-language newspaper in Belgium, La Libre Belgique, claims that doing away with this loi de compétence universelle was in fact the very first thing that the new Belgian cabinet attended to, during last Saturday night (12 July), right after King Albert II had had his audience with Verhofstad to make the inauguration of his new government official. In an article entitled La mort de la compétence universelle (“The Death of Universal Competence”) this paper presents the details. The new law is scheduled to be approved next Saturday (19 July) for presentation to the legislature, with passage expected before the legislature breaks for the summer on 1 August, and its effect will be essentially to place Belgian law, when it comes to the prosecution of genocide or other crimes against humanity, back in the pack where the law of most of its European neighbors stands. Criminal complaints for these offenses will only able to be placed if either the accused or the victim is Belgian or resident in Belgium; and in the latter case the initiation of an investigation will not be automatic, but subject instead to the decision of the federal prosecutor as to whether to go ahead. Plus, the new law will be subordinate to the various international agreements to which Belgium is party which confer immunity to the officials of foreign governments. What this also means is that all pending cases under the old law will be canceled, save three which clearly have to do with Belgian perpetrators or victims – having to do with Rwanda, Chad, and Guatemala. (An anonymous lawyer is also quoted in the Libre Belgique article as maintaining that a pending case against Fidel Castro could also go ahead, but it is hard to understand why. Maybe it involved a Belgian victim.)

The Israeli government has already sent its congratulations to the new Belgian government for this action. Amnesty International has already expressed its regret. And, confusingly, La Derniere Heure covered this with an article entitled La loi de compétence universelle a vécu – “The Law of Universal Competence Has Lived.” I guess what they mean is that it did live, but is now dead; the clear consensus is that the new Belgian government’s actions constitute a final, long-desired abrogation of the law which has been watered down twice since its original passage in 1993 in response to complaints from Belgium’s allies.

Still, US officials will keep their cards close to their vests until they see what new law finally comes out in the end. De Tijd reports State Department spokesman Richard Boucher as saying that, while the US government “appreciates” the intentions of the Belgians to replace the old law of universal competence with a new one, “we will only give commentary on the matter when we have studied in detail the proposed draft law.”

UPDATE: In French arc-en-ciel means “rainbow,” so that’s the Belgian “rainbow coalition”! Of course!