Fisher Investments Editorial Staff
Geopolitics

Pearls of Resilience and Wisdom

By, 12/08/2011

Wednesday marked a couple important milestones: We commemorated and remembered Pearl Harbor’s 70th anniversary, and Belgians woke up under an official federal government for the first time in 541 days, the longest a country’s gone without a national government. Each a testament to democracy’s and capital markets’ resilience, albeit in extremely different ways.

It’s not a tough conclusion to draw with Pearl Harbor—an event which near-instantaneously unified the United States and clarified its way forward. Which was entry into World War II and ultimately victory alongside the Allies over the Axis—an outcome that’s benefited the world and shaped history in countless ways. And for that and other reasons, it’s a day not to be forgotten, particularly as the generation who lived it sees its ranks thinning.

Belgium’s situation is also a testament to resilience. While they certainly had a government in a strict sense over the past 541 days, it was a caretaker government mostly focused on issues like, oh, how to form a new government. Not passing new regulations and laws. Not hiking taxes. Not trying to “help.” Debate’s been hot for years in the country, and since then-Prime Minister Yves Leterme resigned in April 2010, it’s been a complete stalemate. Suffice it to say various political parties have differed greatly as to a coalition government’s formation—often a necessity in a parliamentary form of democracy.

And they disagree strongly on issues like public debt and budget deficit reduction and tax increases (sound familiar?). Differences heightened by longstanding tension between the Dutch-speaking Flemish Community and the French-speaking French Community of Belgium.

Those with even a little familiarity with the depth of regional loyalties and the importance of local culture across Europe can see how such disagreement could create an intensely contentious political situation—after all, the divisions go back to the days of the Holy Roman Empire. There’s even been talk of Belgium’s dissolution and the absorption of regions by the Netherlands, France or Germany (depending upon local language and culture).

And yet, despite all those differences rooted in centuries of history, the Belgians managed to form a government—granted, nearly a year and a half after the election. But for all this time of do-absolutely-nothing government, what happened? Chaos and anarchy seemingly didn’t erupt. (Except for a nude, French-fry carrying, college-student protest over ineffective government and an actor’s proposed national beard-shaving boycott.) Local governments continued operating; folks kept working and going to school. There were undoubtedly near-continuous heated political debates—not hard to imagine, given the tenor of our own debates stateside. But for most folks, life probably continued mostly as usual.

Now, the deadlock was rather poorly timed, considering all that’s going on elsewhere in the eurozone. And Belgium’s sovereign debt yields have had a rocky run since Leterme resigned in April 2010. But as we write, their 10-year yields are roughly 90 basis points higher than then—not too severe a move and certainly smaller than some of their euro-neighbors. Belgium also just reported slightly negative quarter-over-quarter growth in Q3, though they’re still positive year over year. And Brussels-based bank Dexia failed earlier this year and is currently being broken up. But given the volatility in some eurozone nations’ yields and their economic weakness, it’s not clear not having a government made much difference at all.

The reality is, from an economic and market standpoint, government can be something of a necessary evil. An overarching body responsible for writing and enforcing the rules is an essential ingredient in any free, open-market society. But by and large, once those rules are agreed upon and the necessary enforcement infrastructure created, economies built on free market capitalism can seemingly run themselves—an experiment just completed rather successfully by the Belgians. Consider: According to the World Bank, Belgium ranks 28th overall out of 183 countries in their Ease of Doing Business rankings, one spot ahead of France. When it comes to enforcing contracts, it’s 20th—just ahead of the UK. Meaning things seemingly didn’t break down too much under the catatonic leadership they’ve had.

Now, of course it’s likely for the best this particular longstanding spat’s come to an end—particularly as it resolves a decent amount of uncertainty. And it undoubtedly allows Belgians of all stripes (businessmen, politicians, investors, etc.) to focus less on political uncertainty than they have over the last year and half. But it still tells an interesting story about democracy’s and capital markets’ resilience—and on the anniversary of a turning point in the world’s history, it’s an important lesson to remember.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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