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6/7/12

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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