S&P Global Ratings on Friday downgraded its outlook for Italy’s sovereign debt, but left its credit rating untouched, upping the pressure on Rome amid a standoff with Brussels over its budget.
The announcement, which warned that Rome’s fiscal policy was jeopardizing banks’ ability to fund the Italian economy, followed a decision last week by Moody’s to cut Italy’s credit rating to one notch above junk status.
“The negative outlook reflects the risk that the government’s decision to further increase public borrowing — besides exacerbating Italy’s already weak budgetary position — will stifle the incipient recovery of the private sector,” S&P said.
The decision indicates that the debt grade could be cut in the coming months.
The far-right League and anti-establishment Five Star Movement, ruling in coalition, have refused to curb their big-spending program, which forecasts a public deficit of 2.4 percent of GDP next year.
The former center-left government pledged to keep next year’s deficit to 0.8 percent of GDP in a bid to ease Italy’s vast public debt, which amounts to a phenomenal 2.3 trillion euros (US$2.63 trillion).
The European Commission on Tuesday rejected the new plan outright, accusing Rome of “openly and consciously going against commitments made” and requesting a revision.
However, the ratings decision was met with a renewed refusal to budge by Italian deputy prime ministers Matteo Salvini and Luigi Di Maio.
“Are ratings agencies unaware of the global financial crisis?” Salvini said on Friday.
The agencies “do not measure the wellbeing of a country’s citizens,” Di Maio said, adding: “We will continue! Change is under way.”
The Moody’s downgrade, cutting Italy’s debt grade to “Baa3” from “Baa2” — while setting the outlook at “stable” — came as international financial watchdogs sounded the alarm over Italy’s economic choices.
Since mid-May, when negotiations to form the coalition in Rome began, Milan’s stock exchange has lost more than 20 percent. The FTSE MIB closed down another 0.7 percent on Friday.
The closely watched “spread” — or difference between yields on 10-year Italian government debt compared to those in fiscally conservative Germany — has more than doubled, widening from 150 to 309 basis points.
The Italian banking sector, which according to the Bank of Italy holds 372 billion euros worth of the country’s sovereign debt, has been the hardest hit, losing 36 percent on the Milan stock exchange.
Rome has until Nov. 13 to present a revised budget to Brussels and faces a heavy fine if it fails to do so, but the commission has said that it wants to avoid all-out war with the Italian coalition.
In a briefing to reporters on Friday, an EU official said that Italy could be the next country to call on the European Stability Mechanism — which since 2008 has bailed out troubled economies, such as Greece, Portugal and Spain.
“It’s hypothetical for now, but that’s reality,” he said, speaking on condition of anonymity.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure