Fitch Eyes U.S. Downgrade Without 'Credible' Fiscal Plan

A Fitch Ratings executive said Thursday that the firm would likely downgrade U.S. debt if the federal government does not get its fiscal house in order.

Speaking at the firm's global banking conference in New York, Fitch sovereign group managing director Ed Parker said " the U.S. does not have a credible fiscal consolidation plan" and that "if we don't see one after the election, I would expect a downgrade."

Fitch rates the U.S. at triple-A but put it on negative outlook last November, and Mr. Parker's comments were a reiteration of the firm's position. In its original note placing the U.S. on negative outlook last year, Fitch cited the country's uncertain economic growth prospects, and said projections showed federal debt exceeding 90% of GDP by the end of the decade. "In Fitch's opinion, such a level of government indebtedness would no longer be consistent with the U.S. retaining its "AAA" status despite its underlying strengths," the firm said at the time.

Fitch has the U.S., U.K. and France on negative outlook because of high debt-to-gross-domestic-product-ratios. Mr. Parker noted that the three countries, plus Germany, are the most heavily indebted nations among those with the top credit rating (Germany is not on negative outlook because its debt-to-GDP ratio has already peaked and the country is on a path toward more stable finances). Negative outlook implies an increased likelihood of a downgrade in a two-year time horizon.

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EU takes charge and speeds up anti-crisis measures after US downgrade

The European Central Bank (ECB) has said it will buy Italian and Spanish bonds and eurozone countries aer to hold special parliamentary sessions in order to speed up reforms after the recent escalation in the financial crisis.

ECB officials and EU leaders held a series of telephone conferences over the past three days in various formats including the G7, the G20, France-Germany and France-Germany-US in a bid to allay market fears after the Standard & Poor's ratings agency downgraded US debt from AAA to AA+ on Friday (5 August) in a historic move.

The French and German leaders in a statement urged eurozone legislatures to hold extraordinary sessions to ratify a July deal on expanding the powers of the bloc's €440 billion bailout fund, the EFSF. "In particular, they stress the importance that parliamentary approval will be obtained swiftly by the end of September in their two countries," they said.

For more: EUobserver.com / Economic Affairs / EU speeds up anti-crisis measures after US downgrade