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By Philip Blenkinsop

BRUSSELS (Reuters) - Belgium s new centre-right government took office on Saturday, promising to raise the retirement age and slash costs by about 8 billion euros (6.2 billion pounds) to balance the national budget by 2018 and cut the country s debt.

Charles Michel, 38, the youngest Belgian prime minister since 1841, and his team of 13 ministers and four state secretaries swore an oath in front of King Philippe before proceeding to parliament for their first cabinet meeting.

Michel s four-party coalition took office about five months after the parliamentary election in the linguistically divided country, which set a world record 18 months of political deadlock after the 2010 vote.

It is different from previous governments in a number of ways: it is the first to include the Flemish separatist N-VA party, the first to exclude the Socialists since 1988 and the first to include just one French-speaking party since 1958.

The coalition was formed after the separatist N-VA party softened its demands for greater autonomy for Dutch-speaking Flanders, an issue that has dominated Belgian politics in recent years and delayed the previous two government formations.

However N-VA has got its way in excluding the French-speaking Socialists, part of the federal government for the past 26 years and blamed by some in richer Dutch-speaking Flanders for draining cash to a welfare-dependent south.

The new government faces a sluggish economy set to grow at little more than 1 percent this year and a national debt among the highest in the euro zone at about 100 percent of gross domestic product.

In a 147-page accord, it has said it will raise the state pension age to 67 from 65 and introduce measures to limit early retirement.

It will scrap a planned inflation-linked wage rise due next year, find savings in the public sector, including the health and social security budgets, and look into extending the life of some nuclear reactors. It also plans to ban wearing headscarves for civil servants dealing face-to-face with the public.

The long-term unemployed will have to do two half-days of community service per week, but there will be no German-style limit set on the time those without a job can draw full unemployment benefit, as the N-VA had wanted.

It doesn t go that far. It s not what we saw in Germany, said Peter Vanden Houte, chief economist at ING. But there are steps to increase the incentive to work and to work longer. With pensions, they go further than any previous government.

SWEDISH COALITION

All Belgian governments since World War Two have been coalitions. Belgium s electoral system, with Dutch and French-speaking parties appealing to voters in linguistically distinct regions, typically results in alliances of at least two parties from each side.

However, the new government is unusually unbalanced. While about 60 percent of the Belgian population are Dutch-speaking Flemish and around 40 percent French speakers, the coalition is made up of 65 Flemish lawmakers and just 20 French-speakers.

This led the media to dub it the kamikaze coalition because of the risk French-speaker Michel and his liberal party are taking by being the only French-speaking members of the government.

The four party alliance prefers the term Swedish coalition as the blue of the French and Dutch-speaking liberal parties, the yellow of the Flemish separatist N-VA and a cross for the Flemish Christian Democrats (CD&V) make up the Swedish flag.

The Socialists of outgoing Prime Minister Elio Di Rupo has described the new administration as an antisocial government which wants Belgians to work more and earn less and whose major ministries are dominated by the Flemish separatists.

Dave Sinardet, political scientist at Brussels VUB university, said frictions had emerged already between the new partners and the CD&V might have difficulty explaining austerity measures to union representatives in their base.

The unions have given the new government a cool welcome and political analysts say there is a risk of industrial action in the coming months.

(1 US dollar = 0.7911 euro)

(Additional reporting by Robert-Jan Bartunek; Editing by Pravin Char)


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