(Updates bonds in third paragraph.)
Nov. 15 (Bloomberg) -- Austria’s cabinet today signed off a draft law for a debt brake to cut its debt level to 60 percent of gross domestic product by 2020 as the yield spread on the Alpine republic’s 10-year bonds widened to a euro-era record.
The draft law, which is modeled on German regulation, aims for the structural deficit not to surpass 0.35 percent of GDP as of 2017, Chancellor Werner Faymann told reporters in Vienna today. In order to meet the debt-brake criteria, about 2 billion euros ($2.7 billion) of the structural deficit must be cut every year, Faymann said.
Austrian 10-year yields rose 21 basis points to 3.63 percent at 6 p.m. Vienna time, the highest since May. The difference in yield, or spread, over benchmark German bunds widened 21 basis points to 185 basis points, a euro-era record.
The government aims to put the debt-brake rule into the constitution. This would require a two-third majority in parliament, which means that the governing coalition of Social Democrats and pro-business People’s Party will need the support of at least one opposition parties.
Austria’s central bank “endorses the government’s commitment to introduce a debt brake for Austria into its constitution as an important contribution to sustaining public finances and strengthening fiscal policy,” Governor Ewald Nowotny said in an e-mailed statement. “This will help Austria to safeguard financial market confidence and, over the medium term, recapture fiscal flexibility.”
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