A Debt Ceiling for Austria
German language media translated for TVR's Media Monitor
Dec 01, 2011
On Whose Head Will the Debt Ceiling Fall, 18 Nov.
by Hermann Sileitsch
What is the best guarantee of a balanced national budget: a debt ceiling?
No. It is responsible and strong-willed politicians. We are still waiting eagerly for evidence of this: […] Until now it has been impossible to predict on whose head the debt ceiling will fall – the coalition is caught in an ideological debate (cut expenditures or raise taxes?).
In the USA, it is similar: There, the debate on the direction is between Democrats and Republicans.
However, the Americans are wisely putting themselves under pressure – if there is no proposal by 23 Nov., and no decision by the end of the year, the budget will be cut back. Such an ultimatum would have done Austria good: It would have accelerated compromise.
It is a shame that the government was not able to create an Austrian debt ceiling that imitated the German model with a strict deficit limit of 0.35%.
Why do we stop half way? It would make more sense to have counter-cyclical measures, so that the budget target depends on the business cycle: In boom years, the target would be to accumulate a surplus, a cushion for bad times – just like somebody who runs a responsible household: Waste not, want not…
Moody's Expects Approval of Debt Ceiling, 21 Nov.
The rating agency Moody’s praised the debt ceiling Austria is planning to set. If the opposition supports the change in the constitution, that would improve the creditworthiness of Austrian government bonds. In a statement published by APA, the agency also advocated cuts on pensions and public funding.
The debt ceiling "supports the creditworthiness both of the Austrian government and the smaller juristictions (federal sates, municipalities, etc.)," Moody’s analysts write. "This is especially the case if, as we assume, the opposition parties support the constitutional change."
However, Moody’s pointed out that meeting the debt ceiling would require a strict savings policy. The analysts expect that this year’s structural deficit of 3.3% GDP has to shrink to 2% of GDP by 2014: "Therefore it will be necessary to significantly accelerate the reduction of the deficit, in order to reach 0.35% of GDP by 2017."
[…] The rating agency points to the fact that the retirement age for men (59) and women (57) is at the low end compared to other OECD countries. On the other hand, when it comes to pension spending, Austria is at the top of the list compared to other triple-A rated eurozone countries. The same is the case for public funding: it makes up 3.5% of GDP. In Germany it is only 1%, and in Finland and the Netherlands 1.5%.
The Governor of the Austrian National Bank, [Ewald] Nowotny, is also in favour of the debt ceiling. It is a "very important instrument", "in order to secure the long-term legitimacy of public financing." Lifting the debt ceiling to the constitutional level is "certainly not a placebo".