( CNN ) -- Downgrade -- the most feared word in Europe 's financial lexicon . Most attention Friday was focused on France -- Europe 's second largest economy -- as Standard & Poor 's cut its rating on French sovereign debt . But the debt of several other countries also received the Mark of Cain , including Italy , Spain , Portugal and Austria , whose debt rating was cut by one notch from its AAA status . Austria 's inclusion might come as a surprise to those who do n't follow the bond markets . Its economy -- by European standards -- is thriving . The Governor of Austria 's Central Bank , Ewald Nowotny , described the downgrade as `` politically motivated '' and asserted : `` The structure of the Austrian economy is well-balanced ; output has been evolving dynamically at above-average rates ; Austria has a sizeable current account surplus ; and it is the EU country with the lowest unemployment rate [ just 4 per cent ] . '' But Austria has two problems . Its budget deficit has ballooned and now stands at 4.6 percent of GDP ( although by European standards that 's toward the lower end of the spectrum . ) Finance Minister Maria Fekter told Austrian television Sunday that health spending , pension obligations and the state railway system are in the crosshairs as the government looks for annual budget savings in excess of $ 2 billion . Opposition parties say the government has been slow to act -- knocking investor confidence . As in the United States and elsewhere in Europe there is fierce debate in Austria over the balance between tax increases and spending cuts to reduce the deficit . Secondly , Austria ca n't pick its neighbors . To the south is Italy , Austria 's second largest trading partner , where the new technocratic government of Mario Monti is embarking on an austerity program and where the economy is struggling to avoid recession . Austrian banks do a lot of business in Italy and a lot in central and south-eastern Europe . Another neighbor is Hungary , where the government recently forced local banks to let millions of homeowners repay foreign currency loans at below market rates . That 's hurting Hungarian banks because millions of householders took out mortgages in Swiss francs in recent years and now ca n't keep up with repayments . And when Hungarian banks sneeze , Austrian banks catch cold . They have loans worth nearly $ 50 billion in Hungary alone . Last year , one major Austrian bank with considerable exposure in Hungary failed the European Union 's `` stress tests '' -- and has since been selling assets to fortify its balance sheet . The Austrian government may have to pump more capital into the country 's main banks , but for now Austrian banking officials tell CNN the banks can probably raise the capital they need to pass the next round of `` stress tests '' held by the European Banking Authority . Even so , Central Bank governor Nowotny acknowledges that measures need to be taken to `` ensure the sustainability of the business model of Austrian banks active in central and eastern Europe . '' There is only so much that the Austrians can do . Much depends on Hungary 's tortured negotiations with the International Monetary Fund and the European Union over a bailout for its stricken finances . All three ratings agencies have reduced Hungary 's credit-worthiness to `` junk '' status . The chief Hungarian negotiator , Tamas Fellegi , is on a tour of European capitals this week , and sources in Vienna say he will meet the Austrian Finance Minister and Central Bank governor on Thursday . It should be an interesting exchange of views . The Austrians and the European Central Bank have been highly critical of `` populist '' measures by the Hungarian government led by Viktor Orban that have hurt the banking sector . But Orban is under pressure at home not to yield to international pressure . At the weekend , protesters took to the streets of Budapest with banners demanding `` Hands Off Hungary . '' Some commentators have begun talking of Hungary as the `` Greece of eastern Europe . '' Reuters ' Kathleen Brooks blogged last week : `` Once again a small , relatively unknown economy is dominating the headlines and causing a massive headache for the European authorities . '' We 've been there before . In May 1931 Austria 's largest bank , Credit Anstalt , collapsed suddenly . It had built up an unenviable portfolio of bad loans , but they were hidden from public view . As Austrians raced to retrieve their savings , and governments squabbled over a rescue package , panic spread quickly to other European countries . Banks in the Netherlands and Poland collapsed . Some economic historians believe Anstalt 's failure triggered what would become known as the Great Depression .
Hungary 's credit downgrade hidden behind U.S. but could have wide repercussions . The country has low unemployment but is exposed to financial risk in Austria and Hungary . As in the Italy and across Europe there is fierce debate over balancing tax increases and spending cuts to reduce the deficit . Some economic historians believe it was a banking failure in Austria that triggered what would become known as the Great Depression .