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27.10.2018 06:20
(Act 27.10.2018 06:20)
The rating agency sees the uncertainty in the markets
© APA (AFP)
Due to the government's controversial budget plans, the rating agency Standard & Poor's Italy is threatening to degrade its solvency. However, the credit rating remains initially at "BBB," S & P said Friday in London. These are two levels above the so-called Ram level, which describes highly speculative investments.
The outlook has changed from "stable" to "negative". The Italian government's fiscal policy has recently caused great uncertainty in the financial markets.
"In our opinion, the Italian government's economic and fiscal plans weigh on the country's growth prospects," said S & P. Lower economic growth has a negative impact on the public debt relative to gross domestic product (GDP ). Government projects would reduce investor confidence in Italian government bonds. This is seen since the last notable increase in the yields of these papers. The development has also endangered Italian banks already in trouble. These hold high stocks of domestic bonds.
The Italian government had presented a draft budget that did not comply with the rules of the euro area. The deficit should therefore be 2.4% in the next year. Originally, 0.8% had been announced. The budget was rejected by the European Commission. Until now, the two ruling parties, Lega and Five Star Movement, have not shown any willingness to yield. Standard & Poor's also doubt government figures. On the contrary, a deficit of 2.7% is expected.
Already last Friday, the rating agency Moody's had lowered the solvency of the third largest economy in the eurozone. Markets have reacted relatively calmly, with the current BBB- rating still above the so-called undesirable level, which describes highly speculative investments. In addition, Moody's promised not to downgrade his rating. In addition, S & P's decision did not initially result in significant movements in the Eurocourse price. The agency Fitch had also lowered the rating outlook for Italy in early September.
Ratings are important because investors, such as bond funds and insurance companies, guide them. If, at some point, the four major rating agencies (S & P, Moody's, Fitch and DBRS) were lowering Italy to the so-called Ramsch level, the country would have a big problem. Then, the European Central Bank (ECB) should no longer buy Italian bonds, otherwise, no longer accept their business. For conservative investors, the papers would be taboo.
At the height of the European debt crisis, downgrades by rating agencies had exacerbated the crisis. At that time, the creditworthiness of countries such as Greece, Ireland, Spain, Portugal and Italy was rapidly reduced.
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