Italy readies for Standard & Poor fallout over budget
MILAN: Italy braced for a Standard & Poor’s review that could downgrade the country’s credit rating, upping the pressure on Rome amid a stand-off with Brussels over its budget.
Fellow ratings agency Moody’s cut Italy’s credit rating by a notch last week over the populist government in Rome’s plans for larger deficits despite the high public debt load.
The far-right League and anti-establishment Five Star Movement, ruling in coalition, have refused to change their big-spender programme, which forecasts a public deficit of 2.4 per cent of GDP in 2019.
The former, centre-left government had pledged to keep next year’s deficit to 0.8 per cent of GDP in a bid to ease Italy’s vast public debt, which amounts to a phenomenal 2.3 trillion euros.
The new plan went down like a lead balloon with Brussels, which on Tuesday rejected it outright, accusing Rome of ‘openly and consciously going against commitments made,’ and requesting a revision.
Erik Nielsen, head economist at UniCredit, says S&P will likely lower Italy’s outlook but keep its credit rating at BBB. Others, like Matthieu Groues, head of strategy at Lazard Freres Gestion, think the agency will follow in Moody’s footsteps.
The downgrade from Moody’s – from Baa2 to Baa3 – came as international financial watchdogs sound the alarm over Italy’s economic choices. Baa3 is still an investment-grade rating, but it’s only one step above ‘junk’ which many big investment funds are barred from holding. The agency’s decision to give Italy a stable outlook, however, appeared to soothe skittish markets.
“By proposing a budget heavy on debt-fuelled spending, the country started clashes both with the European Commission and with the market,” said Fidelity International analysts Andrea Iannelli and Alberto Chiandetti. — AFP