S&P downgrades Italy but Italian minister downplays it
Standard & Poor’s has cut its rating for Italy to BBB from BBB+ with a negative outlook, but Italian Economy Minister says it is based on old data.
The ratings agency said in a statement that the Italian economy will contract by 1.9% in 2013, with a debt-to-GDP ratio of 129%.
S&P also said Italy’s economic prospects are getting weaker despite the efforts of the recently installed left-right coalition government to revive an economy suffering its longest recession in more than 20 years.
However, Italian Economy Minister Fabrizio Saccomanni has responded by downplaying the downgrade, accusing the US agency of basing its forecasts on outdated figures and ignoring the continuing success of Italian bond auctions.
Saccomanni also criticised the role of credit agencies in general, suggesting that after a string of past bad calls, including missing the signs of the US financial crash in 2007-2008, they no longer had the authority to issue verdicts that could destabilise economies.
Talking to the annual general meeting of the Italian Banking Association (ABI), Saccomanni said S&P’s downgrade of Italian sovereign debt from BBB+ to BBB, with a negative outlook, “appears to be based on a mechanical extrapolation of past data”. He also said the rating agency’s “perception of risks was only based on worst-case scenarios”.
Saccomanni added that “what will really count will be the considerations made by Italian and foreign investors” and that today’s bond issues “went pretty well” despite the downgrade.
Intesa SanPaolo CEO Enrico Cucchiani, who also attended the ABI’s meeting, said he agreed with the minister.
“Their verdicts can carry that risk,” said the head of Italy’s biggest bank by market capitalisation.
“I think their views should just be used as a spur to government policy,” Cucchiani added.
Governments should in any case “think in the long term,” the Intesa chief said, “because their time frame is different from that of the markets”.
However, Italy’s PM Enrico Letta said that S&P downgrade confirmed that the Italian economic situation remains “problematic” and that Italy is being watched carefully by ratings agencies.
“The situation remains critical. Those who believe that everything has been solved at a national level are making a huge mistake,” Letta said during an Italian political talk show.
Italy’s overall unemployment rate is 12% and almost 40% among 15-to-24-year-olds. The new BBB rating remains investment grade and is two notches above “junk” status. Issuing the negative outlook, S&P said it might make another downgrade later this year or in 2014.
Italy’s sovereign debt amounts to more than 130% of GDP is the second-biggest in the eurozone after Greece’s. It is also the main reason the country is periodically exposed to investor speculation that rose to high levels in late 2011 and spreading fears of Rome sparking a meltdown in the currency bloc.