Eurozone Credit Rating

Why Buy Time, If You Don't Want to Use It?, 14 Jan.

by Michael Fleischhacker

So, Austria no longer belongs to the circle of the most trustworthy debtors in the euro zone.

The justification given by Standard&Poor’s for the country’s downgrade from AAA to AA+ – Austria’s economic inter-connections with its problematic neighbours Hungary and Italy, especially in the financial industry – offers a temptation: The government could feel encouraged to place the entire responsibility for the potential additional costs in financing the country’s debt with the banks…

The Austrian state budget’s structural problem – which manifests in the country’s inability to service its existing debts without raising new ones – of course, has nothing to do with the Austrian banks’, doubtlessly risky, engagement in Central and Eastern Europe – on the contrary: Without that engagement, Austria would not have been able to take a disproportionate share of the region’s proceeds from growth over the last decade and a half.

The problem is rather that – despite this unusual economic growth – it hasn’t been possible to reach a balanced state budget.

 

Committed to Their Own Clientele, 15 Jan.

by Ralf Leonhard

If one accepts the international financial markets’ rules of play, then a reaction to the crisis symptoms would have been necessary much sooner.

The government’s frenzied efforts to change the constitution to include a debt ceiling (brushed aside as a hilarious idea five years ago, when the initiative came from then-chancellor Alfred Gusenbauer, SPÖ) lack the necessary seriousness: At the same time, the government approved new debts for the upcoming budget.

To earn back the top rating, Austria has to consolidate its budget in a sustainable manner. While this is undisputed, the governing parties SPÖ and ÖVP are blocking each other – for each of them, protecting their own clientele is far more important than making savings.

 

Committed to Their Own Clientele, 16 Jan

by Andrea Cünnen

Is the vicious circle of downgrades and higher interest rates to be broken by bickering about it? No. Would a European rating agency do a better job? Also no.

The problem, rather, is that the agencies have become too important. Politicians, regulators, and investors themselves bestowed that power on the agencies: Banks are allowed to use the ratings as the basis on which to calculate their own capital requirements; and insurers may only buy bonds en masse if they have a certain rating…

The reason for this empowerment is convenience…Instead of analysing data and connections oneself, one simply looks at the verdict of the agencies – summarised in a few letters.