Standard & Poor’s has downgraded Italy’s sovereign debt rating one notch to A from A+, having considered the country’s “weakening economic growth prospects†and the Italian government’s limited ability to respond to events.
Commenting on the news, economic think tank Re-define, warns: “Italy is now struck in a self-fulfilling downward spiral from which it is unlikely to be able to extract itself without external help.â€
The Brussels-based government advisor’s managing director, Sony Kapoor, continues: “Unless Italian refinancing costs can be brought down close to the 4% level, for example by bold ECB action, all bets are off.
“The miserable failure of EU leaders to tackle the problems posed by Greece does little to inspire any confidence that the much larger and more urgent problems faced by Italy would be managed any better.â€
Mr Kapoor concludes: “Unless the sovereign-bank loop is broken through Eurobonds or full-blooded intervention from the ECB, banks and sovereigns in the EU will continue to drag each other down towards disaster.â€
Earlier this month, Deutsche Bank’s outgoing chairman, Josef Ackermann, warned that some European banks could not withstand further heavy writedowns against sovereign debt.
His comments followed a call from International Monetary Fund managing director, Christine Lagarde, for eurozone banks to be urgently recapitalised to be strong enough to withstand both the risks of sovereigns and weak growth.
The Bank of England has also recently warned that sovereign debt in the euro area could seriously impact the UK banking sector.
Despite limited direct exposures to public sector debt in the most vulnerable eurozone countries, UK banks have larger exposures in the private sectors, the Bank said.
The news of Italy’s sovereign downgrade came as Greek officials reported progress with the International Monetary Fund and European Commission over the next stage of the country’s bailout.
Commenting on the news, economic think tank Re-define, warns: “Italy is now struck in a self-fulfilling downward spiral from which it is unlikely to be able to extract itself without external help.â€
The Brussels-based government advisor’s managing director, Sony Kapoor, continues: “Unless Italian refinancing costs can be brought down close to the 4% level, for example by bold ECB action, all bets are off.
“The miserable failure of EU leaders to tackle the problems posed by Greece does little to inspire any confidence that the much larger and more urgent problems faced by Italy would be managed any better.â€
Mr Kapoor concludes: “Unless the sovereign-bank loop is broken through Eurobonds or full-blooded intervention from the ECB, banks and sovereigns in the EU will continue to drag each other down towards disaster.â€
Earlier this month, Deutsche Bank’s outgoing chairman, Josef Ackermann, warned that some European banks could not withstand further heavy writedowns against sovereign debt.
His comments followed a call from International Monetary Fund managing director, Christine Lagarde, for eurozone banks to be urgently recapitalised to be strong enough to withstand both the risks of sovereigns and weak growth.
The Bank of England has also recently warned that sovereign debt in the euro area could seriously impact the UK banking sector.
Despite limited direct exposures to public sector debt in the most vulnerable eurozone countries, UK banks have larger exposures in the private sectors, the Bank said.
The news of Italy’s sovereign downgrade came as Greek officials reported progress with the International Monetary Fund and European Commission over the next stage of the country’s bailout.
