ANTWERP, Belgium (Reuters) ? The stunning, narrow 16th century Gothic houses in the centre of Antwerp are dwarfed by the nearby modern port, which stretches to the size of 22,000 soccer pitches.
From it, there is a stream of ships carrying everything from cars to cosmetics around the world - 15,200 ships in 2011.
But what was shaping up as a record-breaking year for Belgium's second city turned sour. The euro zone debt crisis smashed into the continent's economy and the country's debt-reducing austerity program is doing nothing for immediate growth.
Cutbacks by businesses, governments and households quietened the frenetic deliveries of containers on the dockside.
"We were on track to have a new, all-time record for cargo flows, but then the crisis came," said Eddy Bruyninckx, chief executive of the port, one of Europe's biggest.
"As long as it goes on, it will keep affecting us," he said.
The debt crisis that began in Greece two years ago has crushed Europe's recovery from the 2008/2009 global financial crisis, potentially shrinking euro zone output by up to 1.5 percent this year by ratings agency Standard & Poor's estimate.
Belgium is a kind of mini-Europe, and not just because it hosts the European Union's headquarters.
The north speaks a Germanic language, Dutch, and has prospered through trade and hi-tech industries. In southern Belgium, the locals speak French, a Latin language, and suffer joblessness and slow growth. Many in the north resent subsidizing the south.
The economic slump, meanwhile, has revealed a deeper weaknesses that is a microcosm of the EU's malaise. High debt, an ageing population and a growing mismatch between workers' skills and the jobs on offer mean Belgium, just like the euro zone, must reinvent itself to avoid prolonged stagnation.
After a 2 percent expansion in 2011, Belgian economic output is expected to grow just 0.5 percent this year, the central bank says. But Belgium's finance ministry and business leaders are more pessimistic, seeing virtually no expansion.
Antwerp port reflects that downturn. It forecasts no growth in cargo volumes in the first half of 2012, and beyond that there is little clarity.
The change in fortunes is not just from the loss of confidence stemming from the debt crisis.
Belgium, like much of Europe, is embarking on 12.6 billion euros in spending freezes and cuts this year to bring its deficit below the EU's limit, while banks are unwilling to lend. But business leaders say the strategy is misguided.
"Cost-cutting doesn't mean that you stop investing. You'll kill entrepreneurship," said Jo Libeer, the head of the business chamber in Dutch-speaking Flanders, his Antwerp office overlooking the grey waters of the river Scheldt that are constantly dredged to allow the massive ships to pass.
"There's only one solution to get out of the crisis, and that's investing in entrepreneurship," he said.
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For a graphic on Belgium: http://link.reuters.com/zaw85s
For full euro zone coverage: http://r.reuters.com/xyt94s
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PANIC IN THE EURO ZONE
Belgian entrepreneurs are finding it tough and for some, the sharp focus on cuts in the euro zone have had more impact than the collapse of U.S. investment bank Lehman Brothers in 2008, which caused the world's deepest downturn since the 1930s.
Christine Buelens, the chief executive of Flanders-based engineering research company Metalogic, lost one of her biggest clients earlier this month, when a French firm cancelled plans for her firm to test new anti-corrosive technologies for chemical storage tanks that would extend their lifespan.
"2008 was one of our best years, but now there's a panic reaction to cut costs," said Buelens, whose highly specialized business is the kind that business leaders say Belgium needs more of. "Our French client cancelled their project purely for financial reasons."
One blow to Antwerp was triggered in when ArcelorMittal, the world's largest steelmaker, in October permanently closed production of liquid steel in the French-speaking city of Liege, a decision unions say could cost 500 jobs.
That has also fed back into lost business at Antwerp port, where imports of iron ore that fed the blast furnaces in Liege have fallen and reduced dry bulk traffic by 6.5 percent in 2011.
"In 2010, people thought we were getting back to doing business, but Lehman Brothers taught us how quickly a financial crisis can start hurting the real economy," the port's Bruyninckx said.
Franco-Belgian banking group Dexia also learned that lesson in October. The euro zone crisis starved it of the credit it needed to keep operating, pushing it towards collapse until Belgium, France and Luxembourg stepped in with state guarantees and Belgium nationalized its local retail business.
FINISHED AT 59?
Belgium could never have insulated itself from the crisis.
But the post-Lehman revival masked the need for reform - a task that is complicated by Belgium's regional divide. It took politicians more than 500 days to form a government after elections in June 2010.
Flemish businessman Paul Kumpen, who exports his Ridley bicycles to 44 countries and has an annual turnover of 25 million euros, says he is tired of paying one of the world's highest tax burdens when the revenues are seen as poorly spent.
"For every 100 euros I make, I pay 52 to the taxman, so I'm getting just 48 euros to reinvest while the government runs an inefficient public sector and pays the pensions of Belgians who retire at 55," said Kumpen, himself 62.
Despite the stereotypes that it is southern Europeans who retire too early, Belgium's official retirement age at 65 is two years lower than Spain, while unofficially many people retire at 59, compared to 62 in Greece, according to the Paris-based OECD.
One in four of all unemployed Belgians are over 50, and getting them to stay longer in the workforce is a challenge.
At the other end of the scale, ambitious companies that want to build on Belgium's promise as a logistics and hi-tech economy say they cannot find the highly-skilled graduates they need.
Only 15 materials engineers -- needed in industries such as aerospace and chemicals -- graduate in Belgium every year and that makes Metalogic's Buelens' life very difficult.
"It's a struggle for life, it's almost impossible," Buelens said. "The last people I recruited included two Polish engineers, someone from China and another from Portugal."
Even with unemployment at 8 percent in Belgium, Flanders has 307,000 jobs it cannot fill because of a mismatch between what companies need and the skills of the unemployed.
"People don't move within the country, there's a big mobility issue," said Libeer, echoing a problem across the EU.
Joblessness, early retirement and an inefficient public sector have pushed Belgium's public debt to almost 100 percent of GDP, leaving less money to pay the growing pensions bill.
Still, at Antwerp port, work is underway on the banks of the Scheldt to build the world's biggest lock at a cost of 340 million euros to handle ever-larger ships that ply world trade.
It is a sign of the optimism that is in short supply across Europe these days and signals the hope that growth will return if European leaders can find a solution to the crisis.
"It is in everyone's interest to deal with it," Bruyninckx said. "And today, not tomorrow."
(Writing by Robin Emmott.; Editing by Sebastian Moffett/Jeremy Gaunt)
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