Standard & Poors cut its ratings outlook for Italy’s debt from stable to negative on Saturday, citing the country’s poor growth prospects and concerns about the government’s ability to reduce public borrowing.
The revision means there is a one-in-three chance that Italy’s debt ratings could be downgraded over the next two years, raising fears that the debt crises that have struck Greece, Portugal and Ireland could be threatening Italy.
However, with a ratings outlook still at A+/negative, Italy remains in far better shape than Greece, which had its debt grade ratings downgraded to junk status on Friday by the Fitch agency.
In a statement, S&P said Italy’s current growth prospects were “weak” and that there was a faltering commitment on the part of the government to undertake necessary reforms to revive the economy.
It cited “potential political gridlock” as a concern for Italy’s finances and predicted weaker growth than the current estimated GDP of 1.3 percent from this year to 2014.
Italian Prime Minister Silvio Berlusconi’s forces suffered a setback in local elections last week, failing to win an outright victory in the election for mayor of the financial capital of Milan. The prime minister is also squabbling with his main coalition partner the Northern League, which is opposed to Italy’s involvement in the NATO campaign in Libya.
Finally, the Berlusconi is on trial on corruption and prostitution charges, which he denies.
In response, the Italian Treasury dismissed the notion that political gridlock would get in the way of reforms, saying it would “intensify” its efforts to implement a debt reduction plan and would maintain all its financial commitments.
It noted that recent evaluations by the IMF and other bodies were “very different” from that of S&P.