Belgium, the small European country best known for being the home of the EU’s capital Brussels, could be the first sovereign default to happen in Europe.

But wait…Belgium begins with a ‘B’ and that letter isn’t found anywhere in the PIIGS. The country has a debt problem like the other distressed European states, but it has a somewhat more significant and imminent concern: potential breakup.

Business Insider mentioned Belgium last month as a potential story to watch and now, with coalition talks failing, its domestic political situation has degraded even further.

The largest party in the country’s dutch speaking north, an area called Flanders, is a Flemish nationalist party. And the south is populated by a French speaking population that is a net beneficiary of state aid.

Now CDS on the country’s sovereign debt is blowing out as markets price in the possibility that a member of the eurozone and EU could be on the brink of breaking up.

Here’s Gavin Nolan from Markit on the country’s recent bond sale activity (emphasis ours):

Belgium’s T-bill auction this morning was less impressive. The lowlands country sold EUR2.81 billion, below the top- end of its EUR2.5-EUR3 billion indicative range. The bid-to-cover ratio on its three-month bill was a solid 4.54, though this was less than the 6.57 achieved a few weeks ago. The 2.12 b/c on the six-month bill was more or less in line with the previous auction.

From Markit, note how the Belgium is moving with the Markit iTraxx SovX Western Europe index.

Reprinted with permission from Business Insider