(Updates with debt brake plan from second paragraph.)
Nov. 16 (Bloomberg) -- Fitch Ratings says its preliminary assessment of Austria’s plans to introduce a constitutional debt limit “will strengthen the country’s fiscal policy framework and credibility, and underscores its commitment to its ‘AAA’/Stable rating.”
Austria’s cabinet yesterday signed off a draft law for a debt brake to cut its debt level to 60 percent of gross domestic product by 2020. 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.
The extra interest Austria must pay investors to hold its bonds instead of German ones has soared this year, even as the country’s debt and deficit is below the European average and it is one of the six remaining euro-area countries with the highest credit rating. The spread over German 10-year bonds stood at 182 basis points today, after hitting new euro-era records on three of the last four days.
“While Austria’s track record of controlling its budget deficit is solid, it does not have a record of sustained overall public debt reduction,” Fitch’s Mark Brown and Douglas Renwick wrote in a note today. “A constitutional debt limit would offset this, enhancing the credibility of the government’s plan and making it more likely to hit its target.”
In order to meet the debt-brake criteria, about 2 billion euros ($2.7 billion) of the structural deficit must be cut every year, Chancellor Werner Faymann said yesterday. The government’s aims to put the debt-brake rule into the constitution requires a two-third majority in parliament, which means that the ruling coalition of Social Democrats and pro-business People’s Party will need the support of at least one opposition party.
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