Italy credit downgrade – uncertainty of election result

On Friday Fitch downgraded Italy’s sovereign debt rating by one notch to “BBB+” from “A-” , also stated the outlook is negative .

The problem is the election didn’t have a clear winner and as such no new Government could be formed .
One thing markets hate more than anything ells is uncertainty .With good reason Italy is the 8th largest economy by GDP in the world but is the 3 largest issuer of sovereign debt ! This year Italy has $414 billion in debt maturing and needing finance ! Thus the uncertainty will possibly increase interest rate it need to ay on its debt , diverting billions of much needed money from the economy to debt payment .Fitch noted it expected Italy public debt would peak at 130% of GDP increased from previous estimate of 125% . An extra $100 billion! The financial crisis has desensitised people of the magnitude of a billions ! The media talk today as its not a big thing !

Fitch noted that Italy’s ongoing recession “is one of the deepest in Europe,” and warned that “the increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy.”

Reminds me of quote by Adam Smith :
”It is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense… They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will”

Tags : Europe , credit downgrade ,Fitch , GDP , Italy ,Election ,Adam Smith

  1. No trackbacks yet.

You must be logged in to post a comment.
%d bloggers like this: