VIENNA Nov 18 It is not just France that now risks sinking into trouble in the euro zone's debt crisis, with a string of the bloc's "core" AAA-rated countries under pressure to prove financial strength that markets no longer take for granted.
France's cost of borrowing has jumped by more than half a percentage point on worries that high public debt and its banks' holdings of other governments' bonds leave it exposed to the collapse of markets in Greece, Spain and particularly Italy.
But borrowing costs in other triple-A lands also surged this week.
The spread between Austria's 10-year bonds and benchmark German Bunds hit euro-era highs despite Vienna's efforts to get ahead of the curve with plans for a constitutional debt brake and spending cap.
Dutch and Finnish spreads hit their highest since 2009, while credit default swap rates on core members have risen sharply since June and July on concerns that bailing out fellow euro zone members would weaken stronger countries' finances.
Given that Austrian public debt is set to peak at around 75 percent of GDP with a deficit next year of just 3.2 percent, or that Finland's is projected to fall to 44 percent in 2012, that begs the question of what more governments would have to do to hold on to triple-A status.
But for many bond investors, the risks to banks and even of a breakup of the euro zone mean Germany is simply the only safe place to park their money.
"I think this isn't so much fundamental analysis as a total abstention of international investors from Europe," one banking supervisor said of the rising risk premia that markets demanded.
"What is this new Europe going to be? Nobody knows, so they lighten up on everything that isn't the most liquid and clearly anchoring market. It is a terrible distortion of fundamentals."
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Eager to persuade ratings agencies and bond buyers that Austria was still the safest of investments, officials in Vienna have shouted from rooftops that they will cut deficits and debt.
"We have to take matters into our own hands," Chancellor Werner Faymann insisted, saying taxpayer money had to be put to work at home, not flow into rising debt costs.
Dutch Finance Minister Jan Kees de Jager has played down the widening spreads over Bunds, pointing out they had been much wider when the crisis broke in 2008 and that the Netherlands had already acted to shore up its finances.
"You have to cut spending and reform on time to show markets you are willing to get state finances back in order again. That's what we did last year when we announced 18 billion euros in cuts and everyone now agrees that it is a good thing to do," De Jager told TV programme RTL Z this week.
Still, wider yield spreads may be the new normal for even sound euro zone countries until policymakers convince markets the bloc can pull out of its debt-crisis nosedive.
Fritz Mostboeck, head of group research at Erste Global Markets in Vienna, said wide debt spreads showed markets were missing some key points, just as they did three years ago when some thought exposure to eastern Europe would sink Austria.
"In my view a lot of things are perhaps being falsely interpreted in the Anglo-Saxon and U.S. areas," he said.
Neighbouring Italy's debt woes have only an indirect impact, he said, noting the financial sectors in France, Germany, Britain and the Benelux countries had significantly more exposure to Italy than did Austria's.
The perceived risk from central and eastern Europe (CEE) -- where Austrian banks are the biggest lenders -- cloaked the fact that the region was growing twice as fast as western Europe and in most cases had sounder public finances, he argued.
All three major ratings agencies rank Austria AAA with a stable outlook, something the government aims to protect.
It projects debt will peak at 75.5 percent of GDP in 2013. The 2012 budget envisages cutting the deficit to 3.2 percent of GDP, with more progress to follow.
The ratings agencies are keeping a close eye on this and on banks' CEE exposure after Austria had to recapitalise lenders to the tune of 9 billion euros during the financial crisis. It and stands ready to pump in another 6 billion if needed.
Standard & Poor's reiterated Finland's AAA credit rating this month, cheering Finance Minister Jutta Urpilainen, who plans to cut debt from an already low 48 percent of GDP.
"When we put our own public finances in shape, we are strengthening investors' stance on Finland," she told reporters.
Fitch Ratings analyst Michele Napolitano called the Netherlands -- where debt is around 60 percent of GDP -- a "solid triple-A country" despite wider spreads.
"The Netherlands is one of the countries that have presented, in our view, a very credible plan for fiscal consolidation and reduction in the medium term....So our analysis for their debt dynamics is quite positive," he said.
Erste's Mostboeck said this month's turmoil had opened a window for buying Austrian debt.
"The deficit is still not so dramatic, the overall debt is not so dramatic. Many market participants are still interpreting things in a completely hysterical and wrong way. It is not as bad as people want to see it."