Belgium has raised a record €21.9 billion ($23.65 billion) from savers in a bond sale designed to compete with bank deposits, a sign of growing popularity for government debt as discontent grows with lenders failing to keep up with surging interest rates. The sale, launched on August 24, was aimed at pressuring banks to raise deposit rates. It marks the biggest funding drive from households in Belgium’s history and is likely Europe’s biggest retail bond sale, the country’s debt agency said on Monday.
The sale has become big news in Belgium, where in just one week, from August 24 to September 1, more than 600,000 citizens bought a one-year bond. In a country with fewer than 12 million inhabitants, this means that one in 20 has participated in the largest financial operation ever launched by the Belgian state. The €21.9 billion raised by the state is also unmatched in European history. The success of the initiative has increased the popularity of its main supporter, Minister of Finance Vincent Van Peteghem.
“Dear bankers, it’s time to wake up,” ran the headline in Le Soir, one of the most widely read news outlets in the country, on Tuesday evening. The movement has been presented as a win-win situation for the state and citizens alike. The former can reduce the interest it pays on its debt thanks to the rain of millions from individuals. The latter obtain a return of 3.3% before taxes in exchange for leaving their money in public hands for a year.
There is only talk of one loser in this entire story: the banks. As Le Soir noted, lenders have seen their clients massively withdraw money from deposits that barely generate any profits at a time of high inflation, and redirect it towards the public coffers thanks to a more generous offer by the state.
The figures are remarkable. Out of the 634,000 savers who invested in the bonds, 400,000 sent the money transfer directly from their bank, while the rest deposited it directly at the debt agency. In Europe, only Italy, which raised €18 billion with a bond issue, comes even close to Belgium’s numbers. The closest precedent in Belgium was the issue in December 2011 announced by then-acting prime minister Yves Leterme, who in an appeal to citizens raised €5.7 billion to alleviate the burden on the public accounts in the middle of the European debt crisis.
Equivalent to around 5% of Belgian deposits, the amount raised now practically quadruples that figure. Authorities are viewing it as sending out a message of confidence in the institutions to the markets. This support is not trivial for one of the most indebted countries in Europe at 106% of GDP, a percentage that the International Monetary Fund expects will increase to 120% by 2028.
In a statement, Van Peteghem took pride in the result. “Savers are giving a signal to their banks to say: we are expecting a higher return than the one that you are offering nowadays on your savings accounts. We ask at least the same respect that you have for your shareholders,” he said.
Higher borrowing costs?
Amid the victory calls, there are critical voices warning that the bond’s profitability is nothing to write home about either, and that once the year has passed, in September 2024, interest rates will surely be lower. For banks, the worst nightmare would be if retail bond purchases by the general public became common practice. The industry warns that if their deposits are transferred to the public coffers, so will the credit available for those who need to take out loans, which will make borrowing more expensive, and ultimately the economy will suffer.
The resounding response of Belgians also underscores that there are still significant pockets of savings available in households. Investors were very varied, from those who put in €1,000 to those who plonked down over €1 million. The average contribution was greater than €30,000, indicating that despite these times of exorbitant prices and economic uncertainty, there is a financial cushion to endure the turbulence and an appetite for products that will prevent the loss of purchasing power, even when that means less liquidity for a while.
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