U.S. rating faces 2013 cut if no credible plan: Fitch

Thu Jun 7, 2012 12:22pm EDT
 
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By Jed Horowitz

NEW YORK (Reuters) - Fitch Ratings reiterated on Thursday it would cut its sovereign credit rating for the United States next year if Washington cannot come to grips with its deficits and create a "credible" fiscal consolidation plan.

It also said it would immediately cut the credit ratings on Cyprus, Ireland, Italy, Spain and Portugal if Greece were to exit the euro zone. Additionally, all euro zone nations would have their ratings put on its negative ratings watch list, setting a six-month time frame for a potential downgrade.

Europe's ongoing sovereign credit crisis undermines already below-trend growth seen in the United States, the world's biggest economy.

"The United States is the only country (of four major AAA-rated countries) which does not have a credible fiscal consolidation plan," and its debt-to-GDP ratio, or how much debt it has relative to the size of the economy, is expected to increase over the medium term, Ed Parker, sovereign ratings analyst, told a Fitch conference in New York.

Lower credit ratings typically lead to higher borrowing costs, putting more strain on government balance sheets already straining to cut spending without sending their economies into a tailspin.

Only in the last week have European leaders broached the prospect of closer economic and political ties to overcome the crisis which has forced severe austerity budgets on Europe's citizens. German and European Union officials are looking into ways to rescue Spain's debt-stricken banks even though Madrid has not called for aid and resisted international supervision.

A voter backlash returned a socialist government in France and boosted the chances for the same in Greece which could put its 130-billion-euro international bailout plan in jeopardy.

Fitch revised down its credit outlook for the United States to negative in November from stable after a special congressional committee failed to agree on at least $1.2 trillion in deficit-reduction measures.   Continued...