By Robert-Jan Bartunek
BRUSSELS (Reuters) - A Belgian mediator gave up trying to revive stalled talks on forming a coalition government on Wednesday, prolonging a seven-month political crisis which has made financial markets punish the debt-laden country.
Johan Vande Lanotte, a former leader of the Flemish socialists, tendered his resignation earlier this month and, after a further for two weeks of deadlock, asked King Albert again to be relieved of his duties.
The head of state accepted this time, the palace said in a statement. The king will meet party leaders once more from Thursday.
"I informed the king that the impasse had not been broken and that there was no real prospect of progress. It has not been possible to get the seven parties back to the negotiating table," Vande Lanotte said, reading from a statement. Belgium has now gone without a new government for a European record of 227 days since an inconclusive election in June.
The deadlock is due to Dutch-speaking parties wanting more powers for their northern region of Flanders, which French speakers oppose and argue that this is a step towards the end of the 180-year-old country.
When Vande Lanotte last tried to quit, investors pushed up the premium for holding Belgian debt compared with German benchmark equivalents to near a record since the introduction of the euro in 1999.
Belgium escaped scrutiny by financial markets in the early months of the euro zone sovereign debt crisis last year. But in November they began to take serious notice of its lack of a new government and a debt almost the size of its annual output.
With a growing economy, and budget deficits this year and last set to be below the euro zone average, most economists believe Belgium is not the next Greece or Ireland -- both of which had to take international financial bailouts. But some say an eventual need for a Belgian rescue cannot be ruled out.
The fact that a Flemish party advocating Belgium's split won the most seats in parliament has complicated negotiations.
WHAT NEXT?
Belgium has been run by the caretaker government of Yves Leterme since the election. Earlier this month, the king took the unusual step of asking Leterme to rein in the budget deficit for 2011 in an attempt to calm markets.
It is not clear what will happen next. Commentators have suggested trying to create a coalition with parties different from the seven which have so far failed to form a government.
Fresh elections are also a possibility, but it seems unlikely that they would change the political composition of the country. Most parties appear against another vote.
"This is a major crisis, but you could say we've been here before," said Carl Devos, politics professor at the University of Ghent. One crumb of comfort was that the latest breakdown had not been acrimonious.
"The calm is good news. It means parties are open to negotiations. There is no talk now of new elections," he said.
(Additional reporting and writing by Philip Blenkinsop; Editing by David Stamp)
