20. 04. 12. - 16:17

S&P concerned about banks' stability in serious crisis

Standard & Poor's (S&P) analyst Alois Strasser has warned that a crisis worse than the most recent one could “totally demolish” Austrian finance institutes’ capital.

Strasser – who is in charge of the US American rating agency’s economic estimations for the Austrian economy – told Die Presse today (Fri) that the Republic of Austria could have to spend 23 per cent of the gross domestic product in such a dramatic scenario. Strasser explained that S&P assumed a recession of six per cent of the GDP, a 60 per cent collapse of stock market trading values and a rise in unemployment of 15 per cent. He admitted that such a situation would be “extreme”. Strasser claimed that S&P had to consider such circumstances to make predictions.

The Upper Austrian analyst warned that Austria’s banks – of which some are highly active in the Eastern European region (EE) – were weakly capitalised in international comparison. Speaking to Die Presse, Strasser said a scenario as dramatic as investigated by S&P for its effects on the state and the various banks was “not very likely” since the credit rating of Austria and the country’s banks would be much different otherwise.

S&P lowered Austria’s rating from the best possible estimation of AAA by one grade to AA+ in January. People’s Party (ÖVP) Vice Chancellor Michael Spindelegger labelled the decision as "wrong and unfair". Austrian National Bank (OeNB) Governor Ewald Nowotny claimed in a first reaction to the step that the New York-based agency acted "politically motivated". The OeNB chief said the decision must have political grounds as it was made public only a few days ahead of a crucial crisis gathering of the government and state leaders of the European Union’s (EU) 27 members in Brussels, Belgium.

S&P’s decision to strip Austria of its AAA was succeeded by a disputed move of rival rating agency Moody’s. The agency put Austria and other EU states on negative credit watch. Moody’s did not lower Austria’s rating but its decision to issue a negative economic outlook means that a downgrading in the near future would not come as a surprise.

Moody’s expert Kathrin Mühlbronner said in an interview a few days later that her team of analysts opted to put the Austrian economy on negative credit watch "because countries like Finland, Germany and Sweden managed to get their budgets under control much better (than Austria)."

Speaking to Die Presse today, Strasser said he would not comment on any details of some governments’ budgetary decisions. But the S&P expert said that attempts to consolidate public budgets “generally make sense”. Strasser appealed on Europe’s governments to improve economic structures to substantially stabilise the continent’s economy. “Economic growth cannot be supported by doing nothing else but spending money. It is possible to save money by creating better structures. This does not necessarily strangle economic growth,” the analyst said.

Strasser also warned that the European financial crisis was not over yet despite cautiously optimistic forecasts by economic research groups. He said that especially struggling countries were in serious need of economic growth. He told Die Presse that “some years” would be needed to achieve a substantial improvement of the situation.

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