BRUSSELS, Oct 8, 2011 (AFP) - Belgium's feuding Flemish and Walloons agreed Saturday on an institutional reform aimed at ending a crisis that has left the kingdom rudderless for 18 months and on the brink of collapse.
The deal will also provide some reassurance to the markets a day after ratings agency Moody's threatened to downgrade Belgium over its failing bank Dexia.
Charles Michel, head of the French-speaking Reformist Movement described Saturday's institutional reform, which devolves more power to the regions, as "the most significant since World War II".
Belgium has been without a central government for a world-record 482 days and the country's rival Flemish and French-speaking politicians still have to agree on a common government platform.
That could yet prove difficult since the divide negotiators need to bridge is no longer simply linguistic but increasingly political, with Flanders leaning heavily to the right and Wallonia to the left.
The latest deal on devolution was seen as essential to any progress in the Belgian crisis.
"Dialogue eventually won the day over cynicism," said Wouter Van Besien, the head of the Flemish Green party.
The eight parties taking part in the two-month negotiations on devolution had reach a deal on some of the key points last month and have now ironed out their differences on the remaining issues.
They are expected to clean up the document on Monday, in time for the agreement to be presented to parliament the following day.
While a caretaker government that lost last year's June elections has reduced the deficit and even sent warplanes to join the NATO-led campaign in Libya, the political impasse has fed fears of a carve-up of the country.
The root of the crisis lies with the fact that many in the richer Dutch-speaking Flanders feel their taxes are financing the poorer French-speaking south, which therefore neglects to do what it takes to bloster its economy.
Buoyed by the main Flemish separatist party's victory in the June 2010 polls, the north is seeking a higher degree of autonomy.
The Walloons for their part fear that a weakening of the central government will make them poorer and pave the way for the country to split up.
Belgium's regions had until now been financed by the federal government but the deal hammered out on Saturday provides for taxes to be partly levied by the regions, giving them some of the fiscal autonomy the Flemish wanted.
The regions' increased powers will apply to various other fields. including health, welfare and traffic laws.