Austria Denounces 'Apocalyptic' Credit Rating Threat
The Austrian finance ministry reacted to a market swing against the country's sovereign debt Friday by saying that its triple A credit rating remains "stable."
Here's a rough translation (made with the aid of Google translate) of the statement posted to the Finance ministry's website:
In connection with discussions on Austria's creditworthiness, Finance Minister pointed Dr. Maria Fekter vehemently denied any "apocalyptic statement" about the stability of triple-A rating. "Austria has a very good employment, consumer demand is good, growth, tax revenues and the consolidation program is continuously met," said Fekter. This draft budget had been drawn up and the stability of the conservative Austrian government finances would be threatened by any additional risks, said the Finance Minister. "The Triple-A credit rating is stable."
So why are investors demanding a rising premium to hold Austria's debt over Germany?
In a word: Italy.
As Tracy Alloway of the Financial Times explains, Austria is regarded as having close financial ties to Italy. And there are concerns that Austria's savings rate is too low to domestically support its bond market. It is basically being sucked into the vortex of fears about financial stability across Europe.
The interest rate spread between Austria and Germany bonds, regarded as the safest of the Eurozone, has hit a new euro-era record.
One driver of the rise in Austrian rates may be a note from a the Austrian think-tank The Institute for Advanced Studies noting that the country's credit rating may be in trouble that was first reported in the German Financial Times.
Austria's parliament meets next week to discuss and vote on a new austerity budget.
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