Bernhard Felderer has explained why the Austrian government is well advised to fight for a two-third majority approval of its debt limit project.
Social Democrats (SPÖ) and People’s Party (ÖVP) are currently trying to convince the Greens and the rightist Alliance for the Future of Austria (BZÖ) that its stricter budget path until 2020 was the best option for the country considering the risk of being robbed of the triple A rating. At least one opposition faction must support a draft bill about the issue set to be voted upon in parliament next week if the law should receive constitutional status.
Felderer – whose warning of a downgrade of Austria’s solvency tempted the coalition to act earlier this month – said speaking to newspaper Die Presse today (Weds): “Adding the debt limit to the constitution would be important. Austria has to set a clear signal.”
The economist – who heads the Institute for Advanced Studies (IHS), one of Austria’s most renowned economic research agencies – claimed that passing the debt brake as a regular bill with the approval of only 50 per cent of members of the parliament (MPs) would not be worth a lot in the opinion of credit rating agencies like Moody’s since the next government in charge could easily annul the agreement.
The incumbent government wants to lower Austria’s debt from resembling 74 per cent of the gross domestic product (GDP) to 60 per cent by 2020 to fulfil the European Commission’s (EC) policies on European Union (EU) states’ federal budgets. The EC could soon implement harsher penalties for countries which contravene the so-called Maastricht regulations which are fulfilled by just a handful of the EU’s 27 member nations at the moment.
The dispute of the left-wing SPÖ and the conservative ÖVP about how this target should be achieved has intensified in the past few days. The SPÖ focuses on checking which taxes could be increased whereas the ÖVP calls for a reduction of subsidies for Federal Railways (ÖBB) and less support for men who retire earlier than 65 and women who stop working before they turn 60. The taxation of assets and properties should be increased, according to the Social Democrats who are strictly against a reintroduction of tuition fees.
Felderer explained today he did not expect Moody’s to lower Austria’s soundness in the foreseeable future – but warned that the American rating agency might lower the alpine country’s outlook. Asked whether Moody’s may issue a downgrade of Austria’s AAA rating, Felderer argued that the agency had to lower France’s rating first. The country is currently fighting against the possible infection of its real economy after the financial sector came under fire for being strongly engaged in Greece. The credit rating of some of France’s leading banks was lowered in the past months due to the high number of Greek government bonds they own.
The IHS head said speaking to Die Presse today that the situation would “worsen” if Moody’s, Fitch or Standard & Poors (S&P) downgraded Austria’s economic outlook. He said: “The rating agencies are observing the situation closely. (…) They expect a clear signal that Austria is taking the task of reducing the state debt seriously.”
Earlier this week, the Organisation for Economic Co-operation and Development (OECD) warned that the Austrian economy would grow by just 0.6 per cent from 2011 to 2012 instead of 2.1 per cent. The organisation also announced that it expected the French gross domestic product (GDP) to increase by only 0.3 per cent. The organisation, which has 34 members, said only in May that the country’s GDP was set to grow by 2.1 per cent from the current year to next year.
Many firms quoted on the Vienna Stock Exchange (WBAG) are going through rough times at the moment. The WBAG’s leading index, ATX, has dropped by 40 percentage points since the beginning of the current year. The Austrian joblessness rate is expected to inch up slightly in the coming months before a sustainable recovery is predicted for 2013 – given that the Eurozone does not collapse due to the high debts of some of its members.
The economy of Greece – which should, according to a growing number of lawmakers across the continent, leave the Eurozone – will shrink by per three cent next year, OECD said yesterday. The institution predicted in May that the Greek GDP could increase by 0.6 per cent from 2011 to 2012.