Decision on Austria 'a wake-up call'

Mon, Jan 16, 2012, 00:00

AUSTRIA’S DOWNGRADE has divided the ruling coalition, with Social Democrat (SPÖ) chancellor Werner Faymann calling it a “wrong and incomprehensible” development.

Mr Faymann played down the decision by “one of three ratings agencies” and said Austria was already on “the right course” of budget consolidation.

His finance minister Maria Fekter, from the conservative People’s Party (ÖVP), said the downgrade was a wake-up call.

“This downgrade is bad news for Austria but it should wake everybody up,” she said. “Now everyone can recognise that this is a matter of debt and deficits, not primarily of the economy.” The government is working to introduce a “debt brake”, similar to the German model, and put a constitution limit on future borrowing.

Ms Fekter said the analysis behind downgrade, largely based on Austria’s exposure to banks in Hungary and other neighbours, was taken on a “largely undifferentiated basis”.

“Until the autumn we probably didn’t take enough notice of the Damocles sword of debt,” she said. “This downgrade should also show the opposition that this is not the time for political point-scoring.” Opposition leader Heinz-Christian Strache, of the populist People’s Party (FPÖ), said the downgrade – and a “negative” warning for the future” – was a vote of no-confidence in the government.

“If nothing better occurs to them than ‘incomprehensible, it’s high time to send these gentlemen into the desert,” said Mr Strache, calling for a general election.

Recent opinion polls show the FPÖ with 27 per cent, sharing first place with the ruling SPÖ. Austria’s central bank governor Ewald Nowotny called the decision an “aggressive, political action” by Standard Poor’s to downgrade “quasi all of Europe in one blow”.

Speaking on national radio, Mr Nowotny agreed that the downgrade of Italy to BBB+ – the same level as Kazakhstan – made it “problem child number one” in the euro zone.

“We know this year Italy has a very significant refinancing need. Italian banks also need refinancing,” he said.

“In normal times this is all possible; in nervous and difficult times it can be a problem. In my view this sharp downgrade of Italy is probably one of the most difficult and problematic aspects of this sweeping blow from the ratings agency.” The Austrian media reacted nervously to the rating’s agency decision. “It’s only a matter of time until the next downgrade comes,” said Der Standarddaily.