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Credit rating reduction 'will cost Austria dear'

The downgrade from AAA to AA+ will cost Austria "a lot of money", an economist has warned.

Bernhard Felderer – who heads the State Debt Commission – said on Saturday that the decision increased the costs of Austria’s soaring debt. He stressed that the step by Standard & Poor's (S&P) would also lead to higher costs for banks and companies. Felderer concluded that the downgrading "will cost us lots of money."

S&P lowered Austria’s credit rating and the country’s economic outlook on Friday evening. It also downgraded the ratings of eight other European Union (EU) members. The US American credit rating agency said Austria’s economic growth was at risk due to the country’s close ties with Italy and the intense level of operations of Austrian banks in neighbouring Hungary.

The Eastern European (EE) country is in need of a capital injection by the International Monetary Fund (IMF). Hungarian Prime Minister Viktor Orban could be forced to scrap a series of disputed tax measures affecting Austrian banks and companies operating in his country. Supermarket company Spar Austria, Erste Bank Group AG (Erste Bank), XXXLutz and other firms are among the biggest foreign investors.

Analysts are concerned that Austria may be too weak to compensate the losses of the domestic banks’ Hungarian subsidies in case of a state bankruptcy or further economic setbacks in the EE state. Erste Bank chief Andreas Treichl stressed he was not expecting Hungary to go bust. Treichl also praised the efforts of Ireland but warned that Greece could drop out of the Eurozone due to the country’s dismal economic condition.

Felderer said on Saturday that Austrian banks’ risks in EE and Hungary "are overestimated in the United States" but added that the main reason for the rating decrease to AA+ was lawmakers’ lax handling of Austria’s debts. Felderer criticised that politicians did nothing about tackling the high debts in economically better times.

Social Democratic (SPÖ) Chancellor Werner Faymann called the decision of S&P "incomprehensible and wrong". He said that "this is the opinion of just one rating agency" and stressed that Moody’s and Fitch confirmed Austria’s triple-A only a few weeks ago. Moody’s said in December it decided to leave Austria’s credit rating unaffected – but warned of rising health sector costs and debts. Fitch issued a confirmation of the Austrian AAA earlier this month.

Faymann expressed hopes that the Austrian opposition may now say yes to the government’s debt brake. The chancellor’s appeal comes around two months after his party and the People’s Party (ÖVP) of Vice Chancellor Michael Spindelegger agreed to add a debt limit law to the constitution. The coalition needs the support of at least one opposition faction to pass constitutional laws. All three opposition factions failed to support the draft bill last month, forcing the government to pass the regulation as a regular bill with its simple majority.

Felderer said a constitutional debt limit would be the only credible measure. National Bank (OeNB) head Ewald Nowotny also called on the parliament to unite in this question and pass a constitutional debt brake. Austria’s debts are around as high as 74 per cent of the country’s gross domestic product (GDP).

Greens chairwoman Eva Glawischnig said last week her party would only approve the government’s debt limit law ideas if the coalition revealed more information about upcoming cost reductions. Glawischnig also called for more "tax justice" and warned from reducing investments into the domestic education sector and climate protection initiatives.

The right-wing Freedom Party (FPÖ) called for measures allowing more direct democracy and lower bureaucratic burdens for people planning to organise referendums. The faction infuriated the SPÖ by calling for a referendum about Austria’s contributions to the European Financial Stability Facility (EFSF). The Alliance for the Future of Austria (BZÖ) said SPÖ and ÖVP must abstain from increasing taxes. BZÖ chief Josef Bucher accused the government coalition of being scared of carrying out significant reforms.

Austrian Times

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Tag cloud:
Chancellor Bank rsquo Hungary European government debt credit limit Ouml Austria coalition Erste constitution rating reduction Felderer opposition domestic stressed

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