Fitch confirms Austrian AAA

Another leading credit rating agency has confirmed Austria’s excellent financial condition.

US American rating agency Fitch said yesterday (Tues) it decided to keep Austria’s rating at AAA, the best possible estimation agencies issue on the financial trustworthiness and stability of a country or a company. Some experts warned that Fitch might consider downgrading Austria due to the economic troubles its neighbour Hungary was currently in before the rating agency confirmed Austria’s AAA.

Representatives of the Hungarian government are set to meet with International Monetary Fund (IMF) chiefs to discuss the provision of credits. The country, which joined the European Union (EU) in 2004, is in need of a capital injection of up to 20 billion Euros, according to analysts. Hungarian Prime Minister Viktor Orban is under fire for a string of disputed reforms affecting the structure and political neutrality of federal institutions like the Hungarian Central Bank and the country’s High Court. His Fidesz party might be asked to declare some of the laws it recently passed as void as a requirement for financial support.

Austria’s credit rating was seen at risk in the recent months due to the alpine country’s strong economic ties with debt-stricken Italy. Analysts keep observing the situation in the southern EU member closely despite promises by its new prime minister, Mario Monti, to carry out austerity measures as soon as possible. Italy is one of Austria’s most important import and export partners. The neighbouring countries are also linked thanks to intense tourism activities. Austrian banks’ strong engagement in Hungary is considered as a biggest risk factor for the Austrian AAA. The finance institutes could lose out on over 30 billion Euros in case of a possible further lowering of the Hungarian credit rating.

Fitch’s decision to confirm Austria’s AAA rating comes shortly after Moody’s said it would not change the state’s top credit rating. Moody’s announced its decision a few days before Christmas. Fitch and Moody’s experts visited Austria in the final weeks of 2011 to meet with businesspeople and economists to evaluate the economic condition of the country. Moody’s said Austria must try to lower its debts as they were as high as 74 per cent of the gross domestic product.

Standard & Poors (S&P) – another influential credit rating agency – is tipped to issue its verdict on the condition of the Austrian economy in a few weeks’ time. Austrian National Bank (OeNB) Governor Ewald Nowotny warned today that fighting to confirm the AAA rating was a task Austrian lawmakers and entrepreneurs would continue to face in the future. Nowotny said he appreciated Fitch’s decision but also warned that the introduction of a constitutional debt brake was a “requirement” to remain a role model as far as financial stability aspects were concerned. Nowotny told radio station Ö1 this morning that a debt limit “is not a solution to the current financial crisis in Europe, but it would be of great help in trying to avoid crisis scenarios in the future.”

The OeNB chief – who previously claimed that the most recent economic turmoil was not a crisis of the Eurozone as a whole but one of some members – appealed to the five factions represented in the federal parliament to agree on adding a debt limit law to the constitution. The government of Social Democrats (SPÖ) and the People’s Party (ÖVP) needs the support of at least one opposition party for a two-third majority needed to pass laws affecting the Austrian constitution.

Economist Bernhard Felderer said introducing a constitutional debt brake would be a good idea since such a step was considered as “credible” by financial markets. He warned that the current debt limit – which was passed with the votes of the government partners after the opposition pulled out of supporting it – was ineffective since future coalitions could easily ignore it. SPÖ and ÖVP are currently discussing how Austria’s debts could be reduced significantly by 2020. The government coalition wants to meet the European Union’s (EU) criteria on federal budgets by then. EU rules say that members had to ensure their debts were not higher than 60 per cent of their respective GDPs.