Fitch downgrades Italy credit rating

Italy’s credit rating was cut one level by Fitch Ratings as an inconclusive election in February produced political paralysis that threatens the country’s ability to respond to a recession and the European debt crisis.

The rating company lowered Italy’s government bond rating to BBB+ from A- with a negative outlook.

That’s three levels above junk and one higher than Spain, according to data compiled by Bloomberg.

“The increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy amidst the deep recession,” Fitch said.

“The ongoing recession in Italy is one of the deepest in Europe.”

Outgoing prime minister Mario Monti helped calm the European debt crisis by taming Italy’s budget deficit and implementing reforms aimed at shoring up the country’s finances. Under Monti, and prior to the election, Italy’s 10-year bond yield had fallen by almost half from a euro-era record 7.5% in Nov 2011.

Monti’s departure, coupled with the divided parliament produced by last month’s vote, fuelled concern that Italy may re-ignite debt crisis contagion.

“Fitch’s decision was not surprising,” finance minister Vittorio Grilli said yesterday in a speech at a conference in Cernobbio, Italy.

The downgrade “is based on a combination of economic and political uncertainty”.

Investors are paying less attention to the views of ratings companies and relying more on their own analysis.

Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53% of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg and published in December.


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