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Austria must brace for stress, economist warns

Bank Austria (BA) chief economist Stefan Bruckbauer has said it is "certain" that investors will react to Austria’s credit downgrade.

The alpine country’s credit rating was lowered by one grade from the best possible level of AAA to AA+ by Standard & Poor's (S&P) on Friday – shortly after the world’s other main agencies, Moody’s and Fitch, confirmed their AAA for Austria.

Bruckbauer said S&P’s decision "will cause stress and insecurity again". He told the Kurier today (Mon) it had to be seen whether interest rates on Austrian government bonds would rise because of the worse rating. The analyst pointed out that price developments of Austrian state bonds depended on developments in the whole Eurozone "to an extent of 90 per cent".

Referring to football, Institute for Economic Research (WIFO) chief Karl Aiginger announced on Saturday that S&P "showed Austria the yellow card". He questioned the decision because of the "immensely high activity of the Austrian economy". Financial market experts stressed that S&P focused on countries’ debts while other aspects like economic growth and unemployment rates mattered more to Moody’s and Fitch.

Reviewing decision-making processes in Europe in the past months, Bruckbauer said today that "politicians made every possible mistake". The chief economist of BA labelled the decision to cancel around 50 per cent of Greece’s debts as the worst mistake of the European Union’s (EU) leaders. Bruckbauer added: "Now politicians know how the financial markets work. This should help in fighting the crisis in 2012."

Bruckbauer stressed that the mood in Europe "is worse than the economic situation." This statement comes shortly after WIFO said that the Eurozone’s average gross domestic product (GDP) would remain unchanged from 2011 to 2012. The think tank added that a growth rate of 1.3 per cent could be achieved next year. The Vienna-based Institute for Advanced Studies (IHS) said the economy in the Eurozone had the chance to grow by 0.4 per cent from 2011 to the current year.

Austria’s government leaders are meeting with National Bank (OeNB) experts and Financial Market Authority (FMA) chiefs to discuss the possible effects of S&P’s step. Social Democratic (SPÖ) Chancellor and People’s Party (ÖVP) Vice Chancellor Michael Spindelegger reportedly agree that the credit downgrade should not change their target of savings two billion Euros a year until 2017. Spindelegger said yesterday the disputed decision of the US American rating agency could force his team of ministers and the SPÖ to carry out austerity measures sooner than planned.

ÖVP Finance Minister Maria Fekter said she felt confirmed in her attempts to pass a package of cost reductions and efficiency-increasing steps by the downgrading to AA+. Fekter recently angered SPÖ officials by claiming that more money than two billion Euros must be saved in the next few years. She mentioned a sum of 2.8 billion Euros and appealed to Austria’s provinces, towns and communities to do their bit.

Werner Kogler, the deputy leader of the Austrian Green Party, said yesterday that Austria’s taxation system "must be restructured". Kogler said higher charges on assets should help lower the tax pressure on the factor labour. Greens chairwoman Eva Glawischnig called for "more tax justice". She said various loopholes rich residents were benefiting from must be filled. Glawischnig appealed to the ÖVP to show more willingness in getting rid of "tax privileges" wealthy Austrians were benefiting from.

Asked whether she expected early elections due to the intensifying dispute about future measures between SPÖ and ÖVP, Glawischnig said there was a chance of 50 per cent that the next federal ballot could take place later this year instead of next year. "It’s better to be prepared than surprised," she replied to a question posted by a participator of an online chat organised by Die Presse.

Meanwhile, public opinion research group OGM found that 92 per cent of Austrians expect being affected by the planned austerities. OGM said 59 per cent of Austrians were planning to spend less as a consequence. OGM polls also show that only 21 per cent of Austrians expect being asked to elect a new parliament in 2012. A majority of 68 per cent told the agency they were convinced that the next general vote would take place as planned in 2013.

Austrian Times

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Austrian stress Eurozone Austria billion politicians leaders Euros experts Bruckbauer Financial credit Glawischnig rating Europe Ouml planned economist rsquo Kogler

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