In October, two rating agencies struck down Italy’s credit ratings: Fitch lowered the republic’s long-term debt rating to AA–; Standard & Poor’s now has it at a lowly A+.
Cue bond traders selling billions of BTPs? No – the market hardly blinked. Fitch’s move, which was widely expected, was based on its concerns that the government would not be able to reduce debt levels in the coming years commensurate with maintaining a double-A rating.
Prime minister Romano Prodi’s government is making some attempt to raise revenues, but the rating agencies are most concerned about levels of spending. Ever since 2005, when Italy’s debt-to-GDP ratio increased for the first time in 10 years, the republic’s politicians have been on borrowed time. A failure to address the structural...
