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4 Economic crisis, health systems and health in Europe: country experience
1. The nature and magnitude of the financial and
economic crisis
1.1 The origins and immediate effects of the crisis
Several hypotheses exist for the triggers of the financial and economic crisis
in Europe. One hypothesis is that the main source was loose fiscal discipline:
fiscal optimism led to economic overheating, which, in turn, led to wage and
price increases, reducing competitiveness and finally inducing an imbalance in
the balance of payments. Another hypothesis is that the economic crisis was
triggered by the crisis in the banking sector: increasing private sector expenditure
was financed by the banking sector, but the credits were used suboptimally. In a
context of low interest rates, consumers and companies consumed and invested
upfront, speculating on future growth. At the same time, the banks did not
manage the credit risk in a prudent way (Constâncio, 2013). However, the
banking crisis was also partly a result of the global crisis in financial markets.
1.2 Government responses to the crisis
A number of European banks had substantial balance sheet exposures to the
housing market in the United States. Faced with losses on several of their assets,
banks rebalanced their portfolios by increasing their holdings of so-called safe
government bonds. However, in the meantime, some banks risked failure,
forcing their governments to step in and recapitalize these banks to protect
citizens' savings; this at a time when public finances were already under huge
pressure because of the recession-induced collapse in tax revenues (Constâncio,
2013). This also happened in Belgium. The Belgian Government made almost
€21 billion of capital injections in the banking sector between 2008 and 2009
(De Leeuw, 2010). In addition, the government guarantees the saving deposits
of Belgian citizens up to €100 000 per person. Because of the imminent failure
of several banks, the government decided to inject fresh capital into the sector,
hoping for a recovery in the economy. The conditions imposed were mainly
limited to (a higher) representation on the board of directors of the bank. The
funds came from regular government receipts, collected through direct and
indirect taxes, capital taxes and non-fiscal receipts.
1.3 Broader consequences: how well prepared was Belgium
for an economic shock?
The impact of the global financial crisis on Belgium's gross domestic product
(GDP) was similar to the impact in other countries. The impact became
apparent in mid-2008 and in the first semester of 2009, when the GDP per
capita was 4% lower than the year before. The economy recovered slowly, and