Case Study: Florence

Sovereign ceiling? What sovereign ceiling? Moody's doesn't accept that it applies any such doctrine. But borrowers perceive their credit rating as being capped by their government, even if they have strong financial credentials. Neil Bissett, managing director at Moody's, says that the central government is "a de facto ceiling" on almost all corporate borrowers and local authorities. The reasons are pragmatic: governments just tend to have resources and powers that make them better credits.

Canadian and Finnish local-authority borrowers have set precedents for being a better credit than the state. But these are cases of structured finance, backed, for example, by real estate. It is almost impossible to convince a rating agency that your plain-vanilla bonds are better than the state's. Just ask the frustrated Basques.

Florence...