Austria regrets Moody's rating action

(VIENNA) - Austria said Tuesday it regretted Moody's decision to downgrade the outlook on the country's credit rating, saying the company had failed to take into account a massive austerity plan.

The finance ministry said Moody's action was based on the view that Austria's public deficit would increase whereas its 26.7-billion-euro ($35.2-billion) austerity programme, announced last week, meant the deficit would actually fall from this year.

On Monday, Moody's Investors Service cut its credit ratings on Italy, Spain and Portugal and put top rated France, Britain and Austria on warning that they could be downgraded too if the eurozone debt crisis deepens.

It cited the region's weak economic prospects as threatening "the implementation of domestic austerity programmes and the structural reforms that are needed to promote competitiveness.

"The negative outlooks reflect the presence of a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns' balance sheets, and of their ongoing austerity programmes, to any further deterioration in European economic conditions and financial landscape," it said.

In Austria's case, Moody's noted the exposure of the country's banks to struggling East European countries as an additional cause of concern.

While the finance ministry Tuesday welcomed Moody's decision to retain the top rating, it insisted that there was no indication that Austrian banks needed fresh state help.

"The Austrian financial sector is currently reinforcing its capital position. We hope that Moody's will bear this in mind when it makes future ratings decisions," a statement said.

Central bank governor Ewald Nowotny insisted that Austrian banks' involvement in eastern Europe "was and still is a success story".

The new austerity package would be "an important contribution" to getting back Austria's top credit rating, which suffered a shock downgrade by Standard & Poor's in January, he said in an interview with Oe1 radio.

Foreign Minister Michael Spindelegger was similarly hopeful.

"I am certain that when the austerity measures have been approved in parliament and the budget plan has been presented in Brussels, that this rating will change again," he said.