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Fitch Says '12 Europe Government Borrowing Unchanged

Published Wednesday, 21st December 2011 11:31 pm - © 2011 Dow Jones

LONDON -- Fitch Ratings said Wednesday that gross government borrowing for the 15 core European Union countries will be mostly unchanged in 2012, but warned there are challenges ahead.

Government borrowing among the EU countries will decline slightly to EUR1.826 trillion from EUR1.848 trillion last year, Fitch said in a report, adding that euro-area borrowing will be down 6.5% year-on-year.

The largest absolute borrowers in 2012 will be France, Italy, the U.K. and Germany, but as a share of GDP, the largest borrowers will be Greece at 35%, followed by Italy at 22%, Portugal at 20% and France at 17%, Fitch said.

Overall, gross borrowing has fallen year-on-year for the majority of European governments, with Austria, Cyprus, Greece, Switzerland and the U.K. notable exceptions, the ratings agency said.

"Refinancing needs are a growing portion of the annual gross borrowing requirements for European governments, following the build up of higher public debt stocks in recent years," said Douglas Renwick, senior director of Fitch's sovereign team.

Medium and long-term debt maturities for the 15 countries are up 19% year-on-year in 2011, Renwick added.

Annual average yields for the 15 countries also increased, rising to 4.1% in 2011 from 3.6% in 2010, the report showed.

More than half of the core countries' gross borrowing requirement for 2012 is by governments that have a negative outlook or have been placed on negative watch, the ratings agency said. This contrasts with the beginning of 2009, where all EUR2 trillion of sovereign debt issuance was from governments whose ratings were on a stable outlook.

Uncertainty about the precise future of the Economic and Monetary Union and concerns regarding the stability of the financial sector will keep European governments subject to potential funding stresses and financial market volatility, which is now also affecting core European countries. Yields over bunds hit record levels for France at 188 basis points and Austria at 183 basis points in November 2011, higher than the 182 basis points Italy faced at end-2010.

The European Central Bank is easing some pressure on the government bond markets through ramped-up market intervention: its bond purchases in the securities and markets programme were EUR211 billion at Dec. 16, 2011, Fitch said. The run-off of government-guaranteed bank debt also offers potential respite for sovereign financing conditions, eliminating a source of competition for sovereign debt.

By Ben Edwards and Carol Dean, Dow Jones Newswires; 44-20-7842-9287;

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