Belgian government crisis looms as budget talks collapse

By Bart H. Meijer

BRUSSELS, Nov 2 (Reuters) - Belgium's King Philippe urged Prime Minister Bart De Wever on Monday to find a compromise over next year's budget, with his government on the brink of collapse following the failure of another round of late-night negotiations.

De Wever had offered his resignation in a meeting with the king on Monday morning.

The king will weigh De Wever's offer, but will also hold talks with the leaders of the other coalition parties from Tuesday, the Royal Palace said in a statement.

"In light of the large geopolitical uncertainty and severe economic challenges, the country can't afford a long political crisis," it said.

The government has been arguing for months about €10 billion ($11.2 billion) in budget cuts and tax increases De Wever says are needed to keep state finances in check.

A coalition deadline to reach an agreement on next year's budget had been set for Tuesday.

 Like other European countries, including France and Italy, Belgium is struggling to balance ballooning national debt with demands from protesters for greater spending to improve services, such as education. Demonstrators have clashed with police in countries including France, Spain, Italy and Belgium in recent weeks.

   Without an agreement the Belgian government could only work with a limited budget next year, allowing it to spend one-twelfth of this year's budget per month.

The crisis coincides with heightened stress on financial markets, where interest rates have risen sharply on government bonds of Belgium, France and other European countries seen to have weak government finances.

The European Commission forecast in May that Belgium's debt-to-gross domestic product ratio would be 110.5% this year, behind only Greece, Italy and France among euro zone countries, with a projected general government deficit of 5.2% of GDP.

Belgium's 10-year benchmark bonds were trading at a yield of 4.36% on Monday morning, against 4.92% for France and 3.30% for Germany.

Four months ago, Belgian 10-year yields were at 3.48%.

De Wever has repeatedly warned of an "interest snowball" without budget cuts, where Belgium would need to take on new loans to be able to pay interest on existing debt. 

In months of talks, De Wever's Flemish nationalist N-VA and the liberal MR have not been able to compromise with their socialist and centrist coalition partners.

The N-VA and MR have pushed for cuts in spending including on healthcare, while their partners demand higher wealth taxes to bring in more resources.

The king will meet De Wever again on Friday. If the king ultimately accepts the prime minister's resignation, he could ask other parties to form a coalition or could call for fresh elections.

($1 = 0.8948 euros)

(Reporting by Bart Meijer and Phil Blenkinsop; Editing by Sonali Paul and Sharon Singleton)