Last week Belgium's Finance Minister Vincent Van Peteghem won significant public favour after launching an eponymous one-year government bond that many jumped on as an unbeatable alternative to putting money into savings accounts.
During the one week window to register, Belgian residents bought well over €22 billion in bonds and the initiative – which will pay an effective yield of 2.81% – was deemed a major success by those behind the scheme. The general appetite to enjoy a good deal surpassed economist predictions and will go a long way in covering the €51 billion that Belgium will need to borrow in 2023 to finance its significant budget deficit.
Belgians were calculated to have savings worth over €300 billion at the end of 2022. Aside from providing a more attractive place for citizens to park their cash without it being undermined by inflation, Van Peteghem has long criticised banks for keeping interest on savings accounts low whilst at the same time profiting from higher interest rates given by the ECB.
This was ultimately a poor deal for customers, Van Peteghem argued, since banks were making a profit from their money whilst paying paltry interest rates. The minister made it clear when announcing the bonds (there also were three-year and ten-year bonds issued in 2023) that he hoped the savings alternative would force banks to compete by upping their interest rates.
What had been framed as a face-off between the government and financial sector was hailed a win for government. "The banks have gambled that Van Peteghem's initiative would not be able to lure away the traditionally few mobile savers, but they have lost," one financial executive concluded.
But others have warned that the State might have bitten off more than it can chew: either because the bill for this borrowing will cost it dearly next year or if smaller banks risk collapse as savers move their money elsewhere. In either case, the final bill for taxpayers would dampen the legacy of the bonds.
However other experts, among them Belgium's former Finance Minister, have labelled the initiative a "masterstroke" that has been a good deal for the public and is leading banks to improve savings rates. Ministers and taxpayers alike will be hoping the final estimation is as positive.
Did you buy bonds? Let @Orlando_tbt know.
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