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S&P’s sticks knife into Italy’s leaders

Silvio Berlusconi can’t really complain about Italy downgrade

Silvio Berlusconi shouldn’t complain. A low-growth economy locked into a rigid currency union, in which debt as a proportion of GDP has risen from 100% to 117% since 2007, is clearly a poorer credit prospect than it used to be if growth remains elusive and debt-reduction plans appear half-hearted. The investment world came to this conclusion some time ago, which is why the market took a sanguine view of Standard & Poor’s downgrade of Italian debt. Attention was focused instead on the International Monetary Fund’s across-the-board downgrading of growth forecasts in the west, which triggered another bout of guessing about the US Federal Reserve’s response.

But S&P’s action is a reminder that worries about Italy don’t merely concern the country’s ability to improve its debt position – it remains a rich country – but its willingness to do so.

S&P turned the knife by citing “political deadlock” as one reason for its downgrade. It was referring to the difficulty in getting politicians, monopoly industries and unions to agree on ways to make the economy more competitive and achieve a balanced budget. It is not alone in that analysis. Fiat boss Sergio Marchionne has complained that “the time for nebulous, unspecified and non-detailed commitments is gone”.

You don’t hear many Spanish industrialists making similar complaints about their own country’s emergency measures, which may be one reason why yields on Italian bonds have surged back above Spanish equivalents. At 5.7%, the yield on 10-year Italian paper is not far from the 6% level seen at the end of July, which was deemed so dangerous that the European Central Bank was obliged to swallow its scruples and starting buying.

If Italian yields continue to rise, get ready for a fresh round of bickering among eurozone politicians. Beating up embattled Greek leaders is a game everybody can play happily. The Franco-German leadership, however, has been quieter on Italy and Berlusconi – but maybe not for much longer. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds