According to the Governor of the Oesterreichische Nationalbank (OeNB), the downgrading of several euro area countries by Standard & Poor’s (S&P) must be seen as a spectacular move of a rating agency regarding the euro area. As announced some time ago, the downgrading round is meant to convey the message that progress made in stabilizing euro area finances has been inadequate, and that the new fiscal rules have not been implemented speedily enough. While this assessment must be taken seriously, it must also be said that it does not reflect the monetary policy measures and the economic policy advances made in recent weeks and months, which have had an impact on capital market conditions since early 2012.
An assessment that brings a downgrading for all AAA euro area countries other than Germany cannot be argued conclusively on the basis of economic fundamentals, and it is not in line with the views of other rating agencies. In its downgrading round, S&P has also downgraded the rating of Austria even though Austria’s positive interest rate differential against Germany (10-year spreads) actually improved significantly last week from more than 150 basis points to somewhat more than 100 basis points.
The individual assessment by Standard & Poor’s should neither be overrated nor ignored. The structure of the Austrian economy is well-balanced; output has been evolving dynamically at above-average rates; Austria has a sizeable current account surplus; and it is the EU country with the lowest unemployment rate. At the same time, Austria is faced with the fundamental challenge of continuing and intensifying the measures taken to consolidate the budget and ensure the sustainability of the business model of Austrian banks active in Central and Eastern Europe.