Economy hurt by language distraction

Belgium is distracted. This small, highly industrialized nation is prosperous, an economic success. But its politicians are so busy dealing with the nation's language and cultural division that they are spending too little time working to overcome serious economic difficulties that threaten continued progress.

"The language question prevents the government from tackling other problems," complained Cecil De Strycker, governor of the Belgian National Bank, during an interview.

Indeed, a package of austerity measures aimed at reducing the government's massive budget deficit has been tied up by the language crisis.

Nonetheless, the language problem has not prevented the nation from experiencing a high degree of economic success:

* Productivity has risen some 80 percent since 1970. That is 10 percent more than in the Netherlands, 15 percent more than in West Germany, and 40 percent more than in the United States.

* Inflation, though up from last year, is still only about 6.4 percent. That is not far from the rate in West Germany.

* Exports per capita for the Belgium-Luxembourg economic union are the highest in the world. "We export 5 billion francs ($175 million) per day," boasted Robert Urbain, minister of foreign trade. Belgium's population is not quite 10 million.

* Some 25 percent of electricity is produced by nuclear power -- a larger proportion than any other country.

* Despite recent pressures for devaluation, the Belgian franc has remained remarkably stable.

To foreigners, the unsettled language dispute, with its interminable hassles over details on such issues as schooling or who subsidizes whom, sometimes almost seems laughable. "It would be funny if the problems at stake were not so important," admitted Mr. De Strycker. "But what is at stake is the unity of Belgium."

The politicians have been striving to reach agreement on a constitutional reform that would turn Belgium into a federation of two or three regions -- Dutch-speaking Flanders in the north, French-speaking Wallonia in the south, and possibly a third region in this capital city. Some 4 out of 5 residents of Brussels speak French; the remainder Flemish. In the entire nation there are 56 Flemings to every 44 Walloons.

It is the problem of how to deal with Brussels which is the stickiest issue, one that prompted Prime Minister Wilfried Martens to offer his resignation to King Baudouin April 3 and it was accepted five days later. The King rushed back from a vacation in Spain after the Senate failed to approve by the required two-thirds majority an article in a constitutional reform that would move Belgium through "devolution" into language regions.

Six Dutch-speaking senators voted against the government-sponsored article because they felt it contained insufficient future guarantees for the Dutch-speaking minority of Brussels.

This language dispute has gone on for years. The ancient division of continental Europe between Germanic and Romantic languages runs right through the middle of this nation, one which the London Economist recently dubbed "a most unnatural country." The British publication speculated on the possibility of the country's splitting in half.

But few Belgians think the political hassle will go so far as to create two nations out of one. "All political parties have been led by the evolution of things to take sort of extreme positions in this issue," admitted Mr. De Strycker. "But no one seriously advocates splitting of this country. Belgians are moderate people, reasonable people. They will find Belgian ways to solve their problems, ways that are not spectacular, but that will work."

Said a commercial bank economist: "You are in a small country and when you have some sound, there are more echoes. In the end, we will always find a solution." He pointed out that Belgians may regard themselves as Flemish or Walloonian at home. "But when we are in a foreign country, we feel like Belgians."

The dispute has involved some street brawls, but no terrorism.

Several people here commented that the dispute was primarily among the "political class," as one put it, rather than among the citizens as a whole. "There is not really very much emotion behind this issue," maintained Mr. De Strycker. "The greater part of the population is not much touched by the language problem. It has some artificial characteristics."

Other than in Brussels, most Belgians live on one side or the other of a carefully drawn "language border" and have few or no language difficulties.

Nonetheless, because of the complex and long history of the language issue, the politicians are stubborn in fighting for their positions, Mr. De Strycker recalls sitting at dinner next to a politician who often has argued that it is necessary to defend the French-speaking residents of Brussels against what she called "Flemish imperialism." Instead of using such rhetoric, Mr. De Strycker told her that the nation's leaders should be urging greater mutual understanding and generosity between the two language groups. She called him "a retarded unitarist."

But unless a greater spirit of brotherhood and compromise emerges, Belgium's language crisis will continue (See Page B4 for an article on language reform).

Meanwhile, the economic problems also drag on. Basically, Belgium has made tremendous economic progress in the last two decades. In fact, some here suspect today's great prosperity may be one factor behind the language fight. With high incomes and an advanced social security system, Belgians can afford the "luxury" of a squabble.

The recent speculation against the franc stems largely from the nation's growing balance of payments deficit, sharply enlarged by the higher price of oil. It amounted to some $3 billion last year and Mr. De Strycker guesses it could grow to $5 billion this year, a sizable amount for a nation with an output of goods and services of about $110 billion. "Such a deficit cannot be continued indefinitely," he says. "We have to make an effort to increase our exports."

Belgium has an extremely "open" economy. Imports are equal to about 51 percent of the nation's gross national product. Its exports and imports are so vital to the nation's welfare that such imbalances cannot be long tolerated. Business trends hang at least as much on the level of activities in West Germany , France, and the Netherlands as on sales at home.

Classical economics would call for an economic slowdown to reduce the demand for imported goods. In fact most economists here figure that the pace of business has already slowed down from last year's real growth of gross national product of about 3.5 percent. But Belgium already has a relatively high unemployment rate of 7.9 percent, one of the highest in Europe. The government is reluctant to prompt a full recession that would cause more workers to lose their jobs.

One reason for this high joblessness is Belgium's unusually generous unemployment benefits. These tempt people to work for a while, quit or get discharged, and live off the benefits for a year or so. Another factor -- one that may be related -- is the large proportion of women among the unemployed as women surge into the labor force in large numbers. They amount to some 60 percent.

The jobless are costly. "Unemployment benefits alone are amounting to more than the current deficit of the Belgian state," Finance Minister Gaston Geens noted recently.

What's the cure for Belgium's current economic ills?

Both government and private economists agree here that it is not devaluation of the Belgian franc within the European Currency Union.

Belgium, noted a top adviser in the Finance Ministry, could only benefit from a drop in the value of its currency if that did not immediately produce rapid price increases. In Belgium, however, devaluation would immediately shove up the prices of imports and the level of inflation. "The impact would be very bad in six or seven months," he said. Moreover, the nation's wage structure is "highly indexed," that is, any boost in the cost-of-living quickly results in offsetting pay boosts. These would raise the costs of production, make Belgium exports more expensive, and soon wipe out any competitive advantage from devaluation.

Over and over, Mr. De Stryker of the central bank emphasizes that devaluation would be "absolutely foolish" and "impossible."

What's needed in Belgium, bank economists here agree, is:

1. A reduction in the size of the government.

Government taxes have grown from about 34.3 percent of gross national product in 1970 to about 43.1 percent this year, a faster growth than in any other European nation. The government deficit, which ran about $3.9 billion last year , is supposed to be trimmed to $2.8 billion this fiscal year -- if the government program gets free from the language problem.

Mr. De Strycker maintains the government must do more to reduce its deficit by cutting expenditures. "Taxation already is so high it has about reached the limit," he says. The marginal tax level for the wealthiest individuals exceeds 75 percent.

2. A slowdown in the rise in the nation's living standards by cutting back pay increases. Belgium's real wages (after removal of inflation) have grown at a fantastic pace in the last decade, though after-tax gains have been less spectacular. But the nation is now living beyond its means.

3. A continuation of at least modest economic growth in neighboring nations and the United States. A sharp recession would dampen Belgium's exports rapidly. Statistics show Belgian costs have become on average somewhat more competitive in relation to its trading partners. But the balance-of-payments gap is large.

"If we have time, we can put our house in order," said Wilfried Janssens, an economist with Kredietbank.