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Italy strikes back over downgrade
September 21, 2011, Wednesday
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ITALY yesterday criticized rating agency Standard & Poor's for downgrading the country's credit rating, saying the decision seemed politically motivated and out of touch with reality at a time when the government was working to boost growth and reduce debt.
S&P cut Italy's credit rating by one notch to A from A+ on Monday in the light of what it sees as the country's weakening economic growth prospects and higher-than-expected levels of government debt.
The downgrade is likely to reinforce fears that the eurozone's third-largest economy is being sucked into Europe's debt crisis, which has already resulted in the bailout of three countries.
S&P, citing Premier Silvio Berlusconi's "fragile" coalition and institutional deadlocks that have blocked reforms, said Italy was vulnerable to heightened risks.
Berlusconi's office responded yesterday by saying the evaluation "seems dictated more by behind-the-scenes reports in newspapers than reality and seems contaminated by political considerations."
Though S&P's rating is still five steps above junk status, it is three below that given by rival Moody's, which is currently assessing Italy.
Italy's debt of 120 percent of gross domestic product is the second highest in the eurozone after Greece. It has carried heavy debts successfully for years because investors have always been willing to loan more as bonds came due.
But bond markets began to look more skeptically at Italy after Greece, Ireland and Portugal needed bailouts.
The government insisted it had a solid majority in parliament, which recently passed measures to get a tighter grip on public finances through a package of tax increases and budget cuts.
It said it was working on growth measures, had pledged to balance the budget by 2013 and said the fruits of its growth and austerity plans will be seen soon.
S&P warned it may downgrade Italy again, saying it anticipates that political differences are likely to limit Italy's ability to respond decisively to its debt crisis.
S&P Managing Director David Beers said: "What we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges."
S&P cut Italy's credit rating by one notch to A from A+ on Monday in the light of what it sees as the country's weakening economic growth prospects and higher-than-expected levels of government debt.
The downgrade is likely to reinforce fears that the eurozone's third-largest economy is being sucked into Europe's debt crisis, which has already resulted in the bailout of three countries.
S&P, citing Premier Silvio Berlusconi's "fragile" coalition and institutional deadlocks that have blocked reforms, said Italy was vulnerable to heightened risks.
Berlusconi's office responded yesterday by saying the evaluation "seems dictated more by behind-the-scenes reports in newspapers than reality and seems contaminated by political considerations."
Though S&P's rating is still five steps above junk status, it is three below that given by rival Moody's, which is currently assessing Italy.
Italy's debt of 120 percent of gross domestic product is the second highest in the eurozone after Greece. It has carried heavy debts successfully for years because investors have always been willing to loan more as bonds came due.
But bond markets began to look more skeptically at Italy after Greece, Ireland and Portugal needed bailouts.
The government insisted it had a solid majority in parliament, which recently passed measures to get a tighter grip on public finances through a package of tax increases and budget cuts.
It said it was working on growth measures, had pledged to balance the budget by 2013 and said the fruits of its growth and austerity plans will be seen soon.
S&P warned it may downgrade Italy again, saying it anticipates that political differences are likely to limit Italy's ability to respond decisively to its debt crisis.
S&P Managing Director David Beers said: "What we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges."
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