Belgium as the Grand Financier of the USA

Pfäffikon SZ, Switzerland – When I think of Belgium, my mind goes on a journey of delicious chocolate, special-brew beer or cycle racing. Recently, I took a whirlwind trip to the beautiful city of Antwerp. Belgians always provide a particularly friendly atmosphere. Who would know that behind this small, unassuming nation lurks a financial powerhouse.

Modest
In 2012, the gross domestic product (GDP) of Belgium was approximately $483.7 billion. To put that into perspective, the GDP of The Netherlands was approximately $772.2 billion and that of Switzerland was $632.2 billion. These figures show that, based on GDP, Belgium is a modest nation. That makes sense, because chocolate and beer sales only take you so far (and that’s fine).

But recent figures from the US Treasury Department show that Belgium is the third largest investor in US Treasuries. After export-driven China and money-printing Japan, the 2nd and 3rd largest economies in the world respectively, comes Belgium with its puny population of 11 million people. The most recent data from the US Treasury Department shows that Belgium holds up to $341.2 billion in US Treasuries. A year ago, that number was just $187.3 billion. Simple maths tells us that Belgium has invested up to 70.54 percent of its GDP in US Treasuries – which is significant. Talk about systemic risks!        

No Tax Haven
It is a remarkable fact, given that the economy of Belgium did not change overnight. In countries such as Ireland or even The Netherlands I would be able to imagine such a thing because these countries are used by international companies to keep taxes in control. The Netherlands is particularly attractive because of its deelnemingsvrijstelling (substantial holding exemption). Belgium hardly uses this type of structure.

Shuffling Possessions
Maybe the solution to this mystery may be found in Euroclear. I began my career in 1989. At the time I had a lot to do with this Brussels-based clearing house, spending time with their competitor, Cedel. Simply put, a clearing house is a financial services company that specialises in the settlement of securities transactions as well as the safekeeping and asset servicing of these securities. The amounts processed by these types of organisations are staggering. Euroclear claims to settle €570 trillion annually in securities transactions. The custodian company of Euroclear is filled with property worth €24.2 trillion. “Every 6 days we settle transactions equivalent to the GNP of the EU,” says Euroclear.

It is very likely that in some countries (and institutions) the panic button was hit when the US threatened to freeze assets upon the outbreak of the situation in Ukraine. According to the latest data, Russia held $126.2 billion in US Treasuries. And the Russians are still investing less in US Treasuries. I would not be surprised if the Russians have (temporarily) placed their investments at the much safer Euroclear. The Russians can then keep their possession out of sight of the Americans. Future figures will soon provide us with an explanation.

Dollar still under Fire
Another interesting question is: what are the Chinese going to do with their US Treasuries? It is well known that the export-orientated Chinese possess too many dollars and that, unfortunately, the US is still an important market for them. Russia, considering the trouble caused by the annexation of Crimea, are becoming ever closer to Asia. Recent developments surrounding Ukraine have increased the Russians’ desire to break the power of the dollar more than ever. Whether that will happen remains to be seen. The Belgians are being used as a safe haven while the forces around the world change rapidly. It will certainly give Obama food for thought.

It remains for me to wish you a good weekend.


Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.