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Austria's Long-Term Ratings Lowered To 'AA+'; Outlook Negative

Publication date: 13-Jan-2012 16:49:46 EST



  • We are lowering the long-term sovereign credit rating on the Republic of Austria to 'AA+' from 'AAA'. At the same time, we are affirming Austria's 'A-1+' short-term sovereign credit rating.
  • The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the European Economic and Monetary Union (eurozone), with which Austria is closely integrated.
  • The outlook on the long-term rating is negative.

FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings 
Services today lowered the long-term sovereign credit ratings on the Republic 
of Austria to 'AA+' from 'AAA'. We removed the ratings from CreditWatch, where 
they were placed with negative implications on Dec. 5, 2011. At the same time, 
we affirmed the short-term sovereign credit rating on Austria at 'A-1+'. The 
outlook on the long-term rating is negative.

Our transfer and convertibility (T&C) assessment for Austria, as for all 
eurozone members, is 'AAA', reflecting Standard & Poor's view that the 
likelihood of the European Central Bank restricting nonsovereign access to 
foreign currency needed for debt service is extremely low. This reflects the 
full and open access to foreign currency that holders of euro currently enjoy 
and which we expect to remain the case in the foreseeable future.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements 
from policymakers lead us to believe that the agreement reached has not 
produced a breakthrough of sufficient size and scope to fully address the 
eurozone's financial problems. In our opinion, the political agreement does 
not supply sufficient additional resources or operational flexibility to 
bolster European rescue operations, or extend enough support for those 
eurozone sovereigns subjected to heightened market pressures. 

We also believe that the agreement is predicated on only a partial recognition 
of the source of the crisis: that the current financial turmoil stems 
primarily from fiscal profligacy at the periphery of the eurozone. In our 
view, however, the financial problems facing the eurozone are as much a 
consequence of rising external imbalances and divergences in competitiveness 
between the eurozone's core and the so-called "periphery". As such, we believe 
that a reform process based on a pillar of fiscal austerity alone risks 
becoming self-defeating, as domestic demand falls in line with consumers' 
rising concerns about job security and disposable incomes, eroding national 
tax revenues. 

Accordingly, in line with our published sovereign criteria, we have adjusted 
downward the political score we assign to the Austria (see "Sovereign 
Government Rating Methodology And Assumptions," published on June 30, 2011). 
This is a reflection of our view that the effectiveness, stability, and 
predictability of European policymaking and political institutions (with which 
Austria is closely integrated) have not been as strong as we believe are 
called for by the severity of a broadening and deepening financial crisis in 
the eurozone.

The ratings on Austria continue to reflect our view of its stable governance 
and predictable economic policies, which remain hallmarks of Austrian 
politics. We view Austria's economy as wealthy, diversified, and highly 
competitive. We expect the pace of fiscal consolidation will increase, which 
we believe could reduce fiscal deficits and debt faster than outlined in the 
government's 2011 budget plan, and perhaps even in its budget for 2012. This 
is provided the eurozone environment does not deteriorate such that it hampers 
this goal. Austria, though still a net debtor on its external position, has 
reported what we consider sound current account surpluses over the last 10 
years, gradually improving its debtor position. In our opinion, contingent 
liabilities are moderate and stem primarily from the banking industry's 
exposure to Central and Eastern Europe.

In our view, Austrian banks' balance sheets could suffer from negative 
developments in major trading and outward direct investment partners (such as 
Italy and Hungary). In this instance, the banks could require additional 
government support. Furthermore, if economic growth is much weaker than we 
expect, this could undermine the government's attempts to consolidate its 
budgets, and could also render structural reforms ineffective.

The outlook on the long-term rating on Austria is negative, indicating that we 
believe that there is at least a one-in-three chance that we could lower the 
rating further in 2012 or 2013. We may lower the rating if we come to believe 
that:
  • The weakening of Austrian banks' balance sheets stemming from negative developments in major trading and outward direct investment partners meant that the Austrian government needed to recapitalize the banks. This could in turn lead to net general government debt rising above 80% of GDP, and could also further increase contingent liabilities; and/or
  • Economic growth is much weaker than we currently expect. This could undermine the government's attempts to consolidate its budgets, and could also render structural reforms ineffective. This could lead to an increase in net general government debt beyond 80% of GDP.
The ratings could stabilize at the current level if the risks from the banking 
sector remained contained, and if Austria were to enter into a more-ambitious 
consolidation phase by implementing structural reforms, without damaging 
economic growth prospects and competitiveness. In our view, such consolidation 
measures would likely enable Austria to structurally balance its accounts and 
decrease its net general government debt.

RELATED CRITERIA AND RESEARCH
All articles listed below are available on RatingsDirect on the Global Credit 
Portal. 
TELECONFERENCE INFORMATION
Standard & Poor's will hold a teleconference on Saturday Jan. 14, 2012 at 3:00 
PM UK time. The teleconference can be accessed live or via replay and by phone 
or audio internet streaming

The call will begin promptly at 3:00 p.m. 

TELECONFERENCE DETAILS
Passcode: 2705831 
For security reasons, the passcode will be required to join the call. 

DIAL IN NUMBERS: 
Country        Toll Numbers            Freephone/Toll Free Number
AUSTRIA        43-1-92-80-003          0800-677-861 
BELGIUM        32-1-150-0312           0800-4-9471 
DENMARK        45-7014-0239            8088-2100 
ESTONIA                                800-011-1121       
FINLAND        106-33-149              0800-1-12771 
FRANCE         33-1-70-75-25-35        080-563-9909 
GERMANY        49-69-2222-3198         0800-101-6627 
GREECE         30-80-1-100-0674        00800-12-6609 
IRELAND        353-1-247-5274          1800-992-870 
ITALY          39-02-3601-0953         800-985-849 
LUXEMBOURG     352-27-000-1351         8002-9058 
NETHERLANDS    31-20-718-8530          0800-023-4392 
PORTUGAL                               8008-12439 
SLOVAK REPUBLIC 421-2-322-422-16           
SPAIN          34-91-414-40-78         800-098-194 
UNITED KINGDOM 44-20-7950-6551         0800-279-3590 
USA            1-210-795-1143          866-297-1588 

TELECONFERENCE REPLAY INFORMATION: 
Call notes: This call is to be recorded for Instant Replay purposes
UK TOLL #: +44-20-7108-6279
UK TOLL FREE #: 0800-376-9027

The instant replay will start at: Jan. 14, 2012 5:30pm UKT
The instant replay will end at: Feb-14-2012 11:59pm UKT

Passcode for replay: 7498
Restrictions may exist when accessing freephone/toll free numbers using a 
mobile telephone. 

AUDIO STREAMING AND AUDIO REPLAY INFORMATION: 
To join the event:
URL: https://e-meetings.verizonbusiness.com
Conference number: 1297498
Passcode: 2705831 

To access the Audio Replay of this call, all parties can:
1. Go to the URL listed above.
2. Choose Audio Streaming under Join Events.
3. Enter the conference number and passcode. (Note that if this is a recurring 
event, multiple dates may be listed.)
Replays are available for 30 days after the live event.
Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.  Alternatively, call one of the following Standard & Poor's numbers: 
Client Support Europe (44) 20-7176-7176; London Press Office (44) 
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm 
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
Primary Credit Analysts:Moritz Kraemer, Frankfurt (49) 69-33-99-9249;
moritz_kraemer@standardandpoors.com
Frank Gill, London (44) 20-7176-7129;
frank_gill@standardandpoors.com
Additional Contact:Sovereign Ratings;
SovereignLondon@standardandpoors.com

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