Wrestling With the Welfare State (1973–1977)

The Nixon and oil shocks in the early 1970s exposed politicians to the threats of capitalist globalization as well as their nation’s economic interdependence. The world market was in turmoil as oil prices quickly accelerated general inflation and hampered growth. In a globalizing and competitive world economy, this was bad news for Belgium. As a small country with a limited internal market, it was highly dependent on foreign markets for both imports and exports. Stagflation brought the country into a deep economic crisis.

At the time, Belgium was going through an economic transition that shifted the country’s main economic activities from the French-speaking south (Wallonia) to the Dutch-speaking north (Flanders). On the one hand, it had stubbornly clung to its obsolete and labor-intensive industries down south. The long-standing industries of the nineteenth century — coal, steel, and textiles — were globally uncompetitive by the 1970s, but continued to play a major role in the country’s economy.

What Flemish Marxist André Mommen called the francophone “Belgian bourgeoisie” retained control over these assets, which made up 60 percent of Belgian exports in 1970. For this fraction, a deadly cocktail of high inflation and union-mandated automatic wage indexation threatened its competitive position on the world market. Meanwhile, in Flanders, a new industrial model and bourgeoisie was booming as it adopted the American Fordist model.

Mainly around the port of Antwerp, a new industrial center grew. Financed by American capital, multinationals had set up their new factories in the region. These enterprises were usually in new and capital-intensive industries that required educated and disciplined workers. The new Flemish bourgeoisie could safely give wage concessions and fund a welfare state because the cost of labor was a relatively small proportion of their investment. It was this fraction of capital, reliant on a growing domestic market, that was willing to cooperate with unions after 1945 to build the welfare state. The “Belgian bourgeoisie” was meanwhile relegated to the position of bystander.

But as the 1970s crisis hit, the inflow of American capital stopped. Between 1974 and 1975, foreign capital investment fell by 60 percent as some multinationals decided to relocate to low-wage countries. To safeguard Flanders’s position as investment hub, the Flemish bourgeoisie dropped its welfare consensus with the unions and realigned with the “Belgian bourgeoisie” in its demands for suppressing wages. For both fractions, wage policy became a central problem.

The state had to intervene quickly in the crisis but found it difficult to find a suitable strategy. The task fell to the CVP’s Leo Tindemans, who had served as Belgium’s prime minister since 1974. His policy options were limited. Wages were set relatively independently from the state through the national “social dialogue” mechanism between employees and employers. But this postwar welfare institution ceased to function as the crisis intensified class confrontation. Proposals to curb wage increases were rejected by the unions, and no agreement was reached after 1974. As the crisis set forth, pressure on Tindemans intensified. He organized a national conference on May 24, 1976, between unions, employers, and holding companies to avoid paralyzing conflict, without success.

While Keynesian politics had fallen into quicksand, social struggles intensified within the factories. Local strikes were organized in response to companies threatening to pull out of the country, shut down production, and implement massive layoffs. The number of strikes increased by 47 percent between 1975 and 1976.

Pressure from below pushed national union leadership to refuse compromises. Through collaborative class struggle, the social democratic and Catholic unions forged a united front, establishing relative independence from their respective political parties, ensuring that attempts to impose economic discipline would run into a strong counterforce.

In February 1977, Tindemans finally initiated a more aggressive austerity policy through his “Egmont Plan.” Jef Houthuys, leader of the Catholic union (Algemeen Christelijk Vakverbond, ACV), found the Catholic government’s plans “all too filthy” and hardened the union front. The Catholic party was internally divided, and the union sought partners outside of it. Together with the social democratic union, they organized the “Friday strikes” from February 15 to March 25, 1977.

The pressure mounted, and the government fell after only a few weeks. Tindemans had tried to break promises but could do little against the power of the unions. The Catholic party had realized that the austerity program it had negotiated with the liberal partners would not simply be accepted. It saw itself obliged to change governing partners. In the next few years, the liberals would give up their position in coalition with the Catholics to the Social Democrats.

The Crisis Shifts to the State (1977–1982)

The crisis was not resolved when voters kicked Tindemans’s government out of office in 1977. It was, however, approached in a different way. The union front, strengthened by its victory, could now cooperate with a friendly government. It initially sought to avoid confrontation. Rather than crushing labor, the new government attempted to use state intervention to revive the economy. Yet even this would not solve the malaise.

In a global crisis like this, Belgium could not save its own skin without a fundamental political shift among the major powers. After the failed G7 meeting in Bonn in 1978, where US president Jimmy Carter and British prime minister James Callaghan campaigned in vain for a new global Keynesian plan, hopes for a global approach to the crisis had vanished. Carter and Callaghan considered it essential that countries with budget surplus, such as West Germany and Japan, should spend more and allow for imports. This was blocked mainly by West Germany, which refused to pay for what was described as the “profligacy” of the United States. The lack of international coordination pushed policymakers into uncharted territory where they had to improvise.

In Belgium, the Catholic and Social Democratic coalition intensified their Keynesian interventionist policies. Under Minister of Economic Affairs Willy Claes, the government gave support to important industries. The Steel Plan (1978) and later Textile Plan (1980) threw a lifeline out to the most important companies. In the steel sector, the Belgian state became a major shareholder in many companies, although it did not use this power to influence the decision-making processes of these firms. Hefty capital injections combined with restructuring had to keep aging industries afloat. These policies were crucial to preventing a larger social disaster. The textile sector still employed 121,500 people in 1971; by 1978, it employed only 79,600.

As a result, state spending swung out of control. From 1973 to 1977, public debt remained stagnant at about 42 percent. Between 1977 and 1982, it rose to a whopping 98 percent. This was not the result of a deliberate and finely planned policy. The period was later described as one of “malgoverno” or bad government.

Between 1977 and 1981 Belgium had no less than seven governments. Each new government shifted coalition partners due to underlying regional tensions between Flanders and Wallonia. The only constant was the presence of the Catholic and social democratic parties. Throughout the political chaos, a new front man replaced Tindemans within the CVP. It would be up to Martens to, by trial and error, break the promises of the welfare state.

Martens Forges Catholic Unity

Wilfried Martens was no enemy of the welfare state, or even of social democracy. Growing up in the countryside, he witnessed its transformation of Belgian society firsthand. An archetypal rural Flemish youngster, he was active in both Catholic and Flemish nationalist movements. Yet he continued to defend the Belgian state that incubated the welfare system, putting aside his aspirations for Flemish independence in the process.

Yet, according to Martens, some problems could no longer be ignored. After 1980, he sought to address the public debt crisis and stagflation. According to Martens, the postwar welfare system had placed too much power in the hands of interest groups rather than the state. Martens believed that political authority urgently needed to reassert itself above these interest groups. Only in this way could the postwar social and political consensus be adapted for survival.

Starting in 1981, Martens tried to make this happen. But this time, the pressure on the Belgian government was so great that the social democratic parties, both Flemish and Walloon, in government reluctantly acquiesced. On March 23, 1981, Martens came to the European summit in Maastricht with the so-called “Fasting Plan” for Belgium, which insisted that austerity measures were necessary to maintain the value of the Belgian franc.

This plan was, however, coolly received. Tindemans called it “creditable but insufficient,” after which West German chancellor Helmut Schmidt also stressed that Belgium should, above all, get rid of automatic indexation, a system that linked wage rises to inflation to which financial markets had also signaled their opposition. In this instance, it was not the unions who boycotted the plan but the “financial gods,” as Martens later described them, who were waiting for an outright slaughter of the welfare consensus.

Five days later, the National Bank of Belgium (NBB) came up with an alternative proposal: the “Beauvois plan.” Over the previous few years, the NBB had been working mainly on a stable monetary system in cooperation with the other European central banks, with the Deutsche Bundesbank at the forefront. Europeanists believed that this was the path for currency stability post–Bretton Woods.

However, since financiers had little confidence that Belgium could control its deteriorating balance of payments and mounting government expenses, they began speculating on the Belgian franc. The National Bank wanted to avoid new fluctuations at all costs. In their view, this could only be done through draconian savings policy to show that Belgium and its currency were reliable investments. Among other things, the plan proposed cutting all incomes by 5 percent, abolishing parts of child allowance, cutting unemployment support, and suspending indexation.

Martens knew the plan was politically unjustifiable. Finance Minister Mark Eyskens remarked at a meeting with the NBB that “one would have to post army tanks on all street corners to implement this plan,” to which Didier Beauvois, president of the NBB, coolly responded that Belgium had a well-equipped police force to keep everything under control.

Martens eventually found himself obliged to adopt the emergency plan in its entirety. One can easily imagine the unions’ reactions. Social democratic union leader Georges Debunne shouted, “Nothing is happening. And if something does happen, I will restart the strikes of ’60-’61. Immediately!” Houthuys, still leader of the Catholic union, asserted that they had “gone mad in Brussels.” The unions’ judgement had sealed the fate of the government. Martens resigned on March 31, 1981. For a second time, the Catholic party tried, and failed, to break promises.

Meanwhile, something was moving within the Catholic party network. For some time, Hubert Detremmerie, president of the Bank of the Christian Labour Movement (Belgische Arbeiderscoöperatie, BAC), had gathered like-minded men within the Catholic welfare institutions to discuss the state of the Belgian economy. Every Wednesday evening, they met to discuss and draw up policy plans that would grow into the “Poupehan group.” Everyone was convinced that things had to change and that austerity measures were necessary. The only question was how such policies could be implemented efficiently without too much social damage.

Alfons Verplaetse, a young economist working at the NBB, proposed a possible way out of the impasse. According to him, a devaluation of the Belgian franc, combined with temporary wage freezes, was politically quite feasible. Within the NBB, this was unacceptable: the value of the Belgian franc had to be guaranteed at all times to keep financial markets calm. What speculator would want to invest in a currency that suddenly lost its value because of a political decision?

Yet, for Verplaetse, it seemed like the only possible way out. With a pen stroke, a devaluation would immediately make Belgium more competitive: its goods would become cheaper on the global market and foreign goods would become more expensive. This devaluation was more politically feasible than any previous austerity proposal.

Still, economic disciplining was necessary, and internal union resistance in the Catholic Party had to be dismantled. Additional wage freezes would, of course, be necessary to prevent these foreign goods price increases from translating immediately into rising wages. In 1981, Verplaetse wrote a policy paper with the high-profile title, “Is There Still a ‘Social’ Path to Economic Recovery?” His answer was simple: no. It would be a painful adjustment process, especially for working people.

Martens therefore needed to convince the Catholic union that discipline and hardship was needed from them, because a joint front between the unions and the social democrats could successfully oppose austerity. In this context, Detremmerie organized the “Flandria Tour” on October 3, 1981. He invited both union and business leaders linked to the Catholic party to have an informal chat. During the closing speech, it was emphasized that in the near future, courage and persuasion would be expected from their trade unionists. The goal of the Flandria Tour was clear: the unity of the Catholic party had to be restored so that Martens could carry through his neoliberal shock therapy. Houthuys was a key actor here: under his leadership, the Catholic labor union changed loyalty to the union front for loyalty to the Catholic party.

In the ensuing election campaign, the CVP threw itself into a public campaign to make the case for a new interpretation of the economic crisis. Their message became crystal clear: the CVP would get to the root of the crisis. The campaign posters showed a barren landscape, with only a few hopeful green leaves still hanging. It was supposed to represent the economic situation. In this grey picture from 1981, the CVP is represented as the last hope for a turnaround. The campaign was unsuccessful; the CVP’s share of the vote fell by over 5 percent. The Liberal coalition still held a comfortable majority so in December 14, 1981, it began the process of introducing neoliberalism to Belgium.

The Neoliberal Shock (1982–1985)

Martens could now focus on implementing the plans joined by Alfons Verplaetse, who had exchanged his position in the NBB for one in politics. As a cabinet employee, he was now responsible for coordinating the cuts and devaluation. This was urgently needed, he said, since Belgium had developed a “wage handicap” of 12 percent compared to its direct trading partners throughout the crisis. With a devaluation, the hot potato could be partially passed on to foreign countries.

Yet the average Belgian also had to tighten their belt. Workers would have to “temporarily” make concessions, but Martens was convinced that the effort was necessary:

I want to testify for the fact that the people who helped draw up the calculations and the measures for this policy acted with great compassion. They do realize that politicians are giving people an unpleasant time. They know that they have to send society, as painlessly as possible, through a bottle neck. . . . At the basis of this is the spirit of Cardinal Cardijn. . . : a striving for general welfare but also the acceptance of effort. . . . This dimension is simply not present in the socialist movement.

After Martens and Verplaetse had discretely convinced the main local and international partners — the International Monetary Fund, West Germany, and the liberal coalition partners — of the necessity of devaluation, Martens could finalize his policy. He had wanted to announce the plans on February 22, 1982. A few days before, he delivered the bad news to union leaders Houthuys and Debunne. While Debunne threatened new strike action, Martens felt assured having already won Houthuys’s backing. He and liberal minister Willy De Clercq then briefed the NBB on the devaluation. Although Governor Cecil De Strycker responded that “in no civilized country is the National Bank made a fool of in that way,” the two men did not approach the governor with an intention to negotiate: the plans were already in motion. The 8.5 percent devaluation was a fact.

Martens additionally requested an emergency procedure from the Belgian parliament. He claimed that such power was necessary for his government to effectively implement the austerity program. Yet it seems more plausible that this power was primarily used to circumvent important barriers, such as negotiations between employers and unions. The emergency law allowed Martens to force a breakthrough, which did not benefit the working class.

For Martens it was of utmost importance that the Catholic trade union remained loyal to him. Houthuys was therefore given a prominent place within the Poupehan group. Between 1982 and 1987, Martens, Verplaetse, Detremmerie, and Houthuys met over several weekends at Poupehan. After going through the problems and celebrating Sunday Mass together, the tasks were divided: Detremmerie had to convince financial circles, Verplaetse the cabinet officials, Martens the politicians, and Houthuys the trade unionists. Houthuys often repeated: “You say what must be done, I will see to it that it can be done.” He seemed to be succeeding: after 1982, the number of strikes dropped dramatically. While there were still 851 strikes between 1979 and 1981, there were only 405 between 1982 and 1984. Because of the broken united front, the socialists were also less combative.

Between 1982 and 1987, the average purchasing power of a Belgian worker fell by 15 percent, while profits rose an average of 10 percent a year. Not surprisingly, productive investment also went up, especially after 1984. By 1985, the main current account deficit with major trading partners had been eliminated. Labor costs fell, improving the international competitiveness of Belgian industry at the expense of workers’ purchasing power. Martens had finally succeeded in breaking the promises of the postwar welfare model.

Guy Verhofstadt and the Fall of Martens VI (1985–1987)

In 1985, the only unresolved issue was the government budget deficit. The 1982 austerity program had intended to eliminate the underlying economic malaise, not to improve the government’s balance, despite election promises. Until 1985, the budget deficit continued to grow by more than 10 percent annually. Meanwhile, total government debt had risen from 98 percent of GDP in 1982 to 118 percent in 1985.

American Federal Reserve chairman Paul Volcker’s interest rate shocks in 1979 and 1981 had much to do with this rise in debt. The dramatic rise in interest rates (“the highest since the birth of Jesus”) was intended to force the US government and economy to cut spending, but at the same time had put a stranglehold on governments worldwide. To avoid a massive increase in borrowing costs, Martens had to follow suit. As the international neoliberal structure solidified, all other options were rendered impossible. Martens could only persevere in his austerity plans.

Austerity was his main political objective from 1985 on. It came with new catchphrases such as “the end of the tunnel” and “stopping the interest snowball.” Through these one-liners he sought to convince voters that neoliberal policies were desperately needed. Martens won a small victory (after the historic low point of 1981). The coalition of Catholics and liberals could continue for another electoral cycle, with Martens at the helm.

It was in this government that the “neoliberal” Guy Verhofstadt took up his first ministerial post. He used the position of Minister of the Budget to execute his main obsession: slimming down what he saw as a fat state. He implemented a fiscal freeze included in the coalition agreement and wanted to pursue severe, Thatcherite policies. Meanwhile, political discourse took a sharp turn, glorifying the austerity policies that Belgium’s establishment parties had only adopted reluctantly. While Martens pushed through “the painful but necessary cuts,” Verhofstadt went on to extol those cuts. Martens’s ideology and strategy was completely different: “The great art consists in changing the direction of the structure. This is not done with spectacular proposals; one must implement them cautiously.”

This difference in political strategy created serious tensions between the two parties. The Catholic party could no longer sell the radical cuts to its trade unionists. The 1986 “St Anna Plan” rolled out an austerity plan to reduce the annual government deficit to 7 percent by the end of 1987. Verhofstadt wanted to make harsh cuts in education and social security, which would affect the Catholic welfare institutions profoundly. Tensions ran high. A national demonstration organized by the social democrats mobilized 250,000 people in 1986, further increasing the pressure on the Catholic union. Houthuys found it increasingly difficult to defend the policy internally.

The sixth Martens government finally fell in 1987 largely thanks to these internal tensions. In an interview in 1991, a few weeks before his death, Houthuys stated that Verhofstadt’s unruliness was the deciding factor:

We were just doing what had to be done for our people. That “piece of pretension” wanted to turn it into liberal victories. The people at the top of the union movement who had supported me until then — reluctantly or not — began to ask more and more questions. . . . We were having all the trouble in the world selling the austerity efforts to our members. Those in government such as Dehaene, Maystadt, and Coens who leaned toward the labor movement stood boldly in the combat zone every day. But Verhofstadt’s provocative language made their position impossible. The policy became neoliberal and our Walloon friends in particular no longer took it.

Verhofstadt, the neoliberal orator of Flanders, had cursed in the CVP. He was, therefore, no longer allowed at the altar. The government’s fall provided a relative pause in austerity measures as the CVP resumed working with the social democrats instead of the liberals. Yet neoliberalism had already solidified in Belgium. There was no going back to the 1970s. In this turnaround, the political economy and landscape were both radically transformed.

The devaluation and Martens’s austerity plan as well as the formation of the Poupehan group in 1982 represented a sudden break with the Keynesian model. The political scientist Balthazar de Robiano rightly concludes that this policy change was a veritable “shock therapy,” where a select group within the Catholic party was given significant leverage to swiftly redraw Belgium’s political economy.

This shock therapy was a drastic intervention after a decade of political stalemate. Split between economic and budgetary crises and union resistance, politics had nowhere to go. After years of negotiations and trade-offs, the idea grew within the CVP that painful cuts were inevitable. The CVP eventually redefined itself as the party that could break promises.

1982 to Today

Was there an alternative to Martens’s neoliberal policies? To a certain extent, Belgium was powerless in the face of the international crisis and its political responses. As the main political party of a minor European nation, the CVP was effectively navigating choppy international waters in a dinghy. The crisis of the 1970s had a global dimension, and how the world would respond to it was mainly in the hands of the bigger nations.

On that global level, the chaos of the 1970s not only created a host of threats, but also opened a window to opportunities. Carter proposed alternatives to combat the crisis at the G7 Bonn Summit, and European socialists did the same at the new European level. Gradually, these alternative doors were closed, and a new political economy of discipline appeared in their place. The Volcker shock was a tipping point: the Fed had decided that the world must accept austerity as the new normal.

Yet the lack of alternatives explored within the CVP was astonishing. The party hardly made any effort in international and national politics to think beyond the emerging disciplinary climate. Certainly, in the European context, where West Germany was charting a monetarist course for the European community, the CVP was not plotting an alternative route. Perhaps unsurprisingly, Verplaetse himself was a great admirer of West German politics.

At the national level, the CVP was clearly the biggest “welfare party,” mediating and fabricating political consensus between the different socioeconomic classes, as represented in their respective Catholic welfare institutions. In 1982, a currency devaluation had to ease pressure on the Catholic workers’ movement. Simultaneously, pressured by the crisis and hosting the Flemish bourgeoisie, the party introduced economic discipline.

If the promises of the postwar consensus were to be broken, alternatives could not get in the way of the Flemish bourgeoisie’s interests. That condition structurally hampered the political horizon of the CVP. Although a complete demolition of the welfare state was not a priority for the Flemish bourgeoisie, the discipline had to be sufficient to make Belgium more competitive. So, for the CVP, neoliberalism was not strictly a “TINA” story, but it was the path of least opposition. The CVP sleepwalked into the neoliberal era.

February 1982 was thus a tipping point for Belgium. A neoliberal wage policy à la Belge began. Although automatic indexation was never scrapped — even today, this would be politically infeasible — multiple governments have resorted to “index jumps,” the latest  in 2014. Moreover, over the years, governments have tweaked the calculative model behind indexation, technocratically dismantling the system while avoiding political repercussion.

At the time of writing, this also seems to be becoming the strategy of the next government. Most importantly, however, automatic indexation was countervailed with the 1996 “wage norm law,” creating a ceiling to real wage increases. The law ruled that real wage increases should be confined to an average of wage growth in neighboring countries. The law was passed to secure Belgian competitiveness, anticipating further European integration. It has put the Keynesian collaborative model between employers and unions in a political straitjacket, stuck between automatic indexation and European wage competition. Since 1982, real wage increases have been very limited.

These strategies mark the ascent of conservative economic ideas over Keynesian ones. Since the neoliberal discipline was introduced, the political function of the welfare institutions has decayed. Not surprisingly, their ties to the “welfare party” weakened, and these institutions have often disintegrated. This shift damaged the CVP the most. Martens demanded an immense political effort from the Catholic trade union, only to bypass its power and implement austerity.

As a result, the CVP lost its role as a pivot in Belgian politics and crumbled electorally subsequently. In the elections that took place in June this year, it could barely convince 13 percent of Flemish voters to give them their support. Similarly, both Flemish and Walloon social democratic parties have lost considerable support since the ’80s but have been nevertheless more resilient. After all, these welfare parties did not initiate austerity, they only accommodated it.

Which ideologies have filled the void of the crumbling CVP? Overwhelmingly, Flemish nationalism has replaced Catholicism. In June 2024, about half of Flemish voters either supported the New Flemish Alliance (Nieuw-Vlaamse Alliantie, N-VA) or Flemish Interest (Vlaams Belang, VB), both receiving about 25 percent of popular vote. VB is the more radical New Right variant of this political realignment; thus far it remains politically isolated.

The N-VA is ideologically closer to the Liberal Party, which it overtook electorally. The N-VA has become the new political lynchpin of Flemish politics. What unites VB and N-VA, however, is their welfare chauvinism. Both accept that austerity is needed — although N-VA is the more enthusiastic executor — and they both agree that Flemish workers shouldn’t bear the brunt anymore.

After four decades of economic disciplining, these parties blame the Walloons, migrants, and “social parasites” for their threatened postwar welfare consensus. From the crumbling CVP, the Flemish bourgeoisie ran to the N-VA, while VB radicalized Catholic voters. To turn the tide of welfare chauvinism, the Flemish left will need to find a way through and beyond austerity politics.