S&P Lowers Italy Outlook To Negative

Tyler Durden's picture

First Credit Agricole, now Italy....Maestro: the EUR take down orchestra is reaching the fortissimo cadenza. Next up: the glissando.


  • In our view Italy's current growth prospects are weak, and the political commitment for productivity-enhancing reforms appears to be faltering.
  • Potential political gridlock could contribute to fiscal slippage.
  • As a result, we believe Italy's prospects for reducing its general government debt have diminished.
  • We have therefore revised the rating outlook on Italy to negative, implying a one-in-three chance that the ratings could be lowered within the next 24 months.
  • We have also affirmed the 'A+/A-1+' sovereign credit ratings on Italy.

Rating Action

On May 20, 2011, Standard & Poor's Ratings Services revised its outlook on the ratings on the Republic of Italy to negative from stable to reflect its views of the heightened downside risks in the government's debt reduction plan. At the same time, Standard & Poor's affirmed its 'A+' long-term and 'A-1+' short-term sovereign credit ratings on Italy. The transfer and convertibility assessment remains at 'AAA'.


The negative ratings outlook on Italy (unsolicited rating A+/Negative/A-1+) reflects Standard & Poor's view of the increased downside risks to the Italian government's debt-reduction plan because of potentially weaker-than-expected economic growth and possible political gridlock that could contribute to fiscal slippage. The diminished growth prospects stem from what we consider to be a lack of political commitment to deregulating the labor market and introducing reforms to boost productivity. We believe measures to reduce the bottlenecks and rigidities in Italy's economy are especially important in light of Italy's limited monetary flexibility, which stems from its membership in the European Monetary Union and its limited fiscal room to maneuver because of Italy's high government debt burden.

We expect that Italy's government debt burden will remain the key rating constraint over the foreseeable future. We forecast net general government debt at 116% of GDP in 2011, up from 100% of GDP in 2007 and on par with the 1997 level. Under our analysis, the economic contraction between 2008 and 2009 has negated all of Italy's fiscal-consolidation efforts over the last decade. In our view, there is greater than a one-in-three chance that Italy will not reduce general government net debt to 113% of GDP by 2014, which is envisaged in our baseline projection.

Italy's economic recovery since the 2008-2009 contraction has been lackluster, constrained mainly by net exports. Italy's traditionally near-balanced trade deficit has widened in the past 15 months. In our view, the Italian economy's limited ability to benefit from strengthening external demand reflects low productivity growth, limited labor mobility, and a steady erosion of international competitiveness over the past decade. Although these factors have affected the Italian economy for more than a decade, their impact on growth and, consequently, debt dynamics is greater now because of intensifying competition in Italy's key export sectors, further appreciation of Italy's wage-deflated real effective exchange rate, and the risk of rising funding costs for Italy's private and public sectors.

We believe that the structural measures implemented in 2010 and those in the recently updated National Reform Plan are insufficient to boost economic growth in the medium term. In addition, we believe the increasing fragility of the current governing coalition makes the timely implementation of more significant growth-enhancing structural reforms politically more challenging. If low economic growth persists, the fiscal outcome will, in our view, likely significantly miss the government's targets and therefore may derail the debt-reduction plan laid out in its most recent Stability and Growth Program. In the longer term, we believe that growth prospects could dim further as a result of Italy's unfavorable demographic profile.

Italy's interest burden is more than 10% of government revenues in 2011, is  higher than the 'A' median of 7.5%, and is forecast to rise. Interest expense  reflects the impact of Italy's high debt burden on its public finances. On the other hand, strong household and corporate balance sheets have enabled  the government to fund itself at historically low rates, and we expect that  these low rates could facilitate a more gradual fiscal adjustment in Italy  relative to many of its southern European neighbors. Italy's corporate sector  is in a net external asset position (including outbound foreign direct  investment and equity) equal to 42% of GDP, equivalent to twice the net  external liability position of the financial sector. However, the public  sector's net external liability is high at €782 billion (50% of GDP). We also believe the Italian banking sector has recently been strengthened by  additional capital issuance and is in a stronger financial position than it  was six months ago. We do not expect the government will provide direct assistance to the Italian banking system in the near term; on the contrary, we expect most of the Tremonti Bonds, which provided four banks' Tier I capital during the 2008-2009 recession, will be repaid this year.


The negative outlook on Italy reflects Standard & Poor's view of the mainly downside risks to the government's debt-reduction plan over the 2011-2014 period, and implies a one-in-three chance that the ratings could be lowered within the next 24 months. In our view, these downside risks will primarily stem from weaker growth than our current assumption of average GDP growth of 1.3% over the 2011-2014 period. In addition, extended political gridlock could contribute to fiscal slippage.

If one or a combination of these risks materializes, Italy's general  government debt could stagnate at the current high level. In this case, we may lower the long- and short-term ratings on Italy. On the other hand, if the government manages to gather political support for the implementation of competitiveness-enhancing structural reforms, paving the way for higher economic growth and faster reduction of its debt burden, the ratings could remain at the current level.

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Rodent Freikorps's picture

So nations are failing in the order their women are hairy. Weird.

I guess France is next.

speconomist's picture

Nope, it's way easier, instead of PIGS or PIIGS, there's a word which explains it chronologically:








Ahmeexnal's picture

Spain is just the latest North African country to join the others in overthrowing their despot rulers.  It's about time Juan Carlos and his family are put behind bars. Better yet: OFF WITH THEIR HEADS!!!!!!

topcallingtroll's picture

How primitive to allow a parasitic "royal family" in the modern era.

falak pema's picture

Except they don't run anything, like in the UK. They are just rich stakeholders in Bilderberg. Like the royal families of Holland and UK.

Don't worry the US has the Kennedy and the Bush clans.

ElvisDog's picture

I heard the Bilderbergs are controlled by the Trilateral Commission who themselves are controlled by the Freemasons. Of course, the command-and-control all goes back to the Knights Templar, who faked their deaths in 1307 so they could rule the world in secret.

Rodent Freikorps's picture

I think Prince Charles inherited the crazy gene.

Reptil's picture

phah... This shows that you know little about Spain. Ever been there?

Yen Cross's picture

 That beats Piigs any day. Smart thinking!

Roger Knights's picture


(To keep it as a true acronym--with the initial letters used.)

Yen Cross's picture

 Roger we have a Sunday open! GIPSI's

Mec-sick-o's picture

Sunday is an observance day, better use Sundae (just like ice cream sundae)

speconomist's picture

Sorry, actually it is possible to use the Y of Italy.


Etomology tells us that acronym means word formed with the ends of the words (either the beggining or ending), therefore, making GIPSY the perfect acronym.

oogs66's picture


Portugal, Ireland, Greece

Japan, US, Italy, England, and Spain

DoChenRollingBearing's picture

I hope to see some of our European friends (and those Americans who know both the USA and Europe well) comment on this as well as their opinions of how risky "Europe" is vs. the USA.

Europe is a Big Enchilada, and we need to pay attention.

Rodent Freikorps's picture

Wouldn't EU tanking be much like the end of WW2?

I could live with a 1950s redo.

duncecap rack's picture

China would do the manufacturing this time.

Rynak's picture

I think that the EMU and its economic structure is unsustainable, but that was the case already when it was established... all that happens now is the result of doing something this stupid (short version: europe is a smaller and more complex version, of the china-USA situation).

My impression is that the EMU collapse will happen earlier than the China-USA collapse... that is: "soon". The reason for this however is, that here in europe, despite of us coming up with stupid stuff as the EMU, we are financially more strict, and ring alarm bells much earlier. So, the reason why the EMU will imo break, is not because it is in a worse situation than the USA.... instead, we just consider stuff "broken" earlier than the USA, and even though we also have those batshit insane banks, we do not let them act as batshit insane as in the USA.

P.S.: If the above made europe sound financially responsible, then this is a misunderstanding. We are just a little bit less irresponsible.

Sudden Debt's picture

For the last 5 months now, a lot of money is fleeing the EU. And it's like a river of water under a gletcher that eats it up from underneath.

And you clearly see 2 kinds of capital flights. The babyboomer kind that is playing it really safe and than you have the -35's that follows the mainstream media investment advice but also hears from the babyboomers that it's time to relocate the assets.

the problems with the -35's is that they mostly lack even the basics of economics. All they know is that everything always goes up, and untill now it has always done so. Even during this crisis. So a endgame would surprise them all 100% and suck even thier last reserves into it as it would all be super buying opps. in their eyes. They don't want to hear the bad news.

But I kid you not when I say that enormous amounts of money are getting out of the EU. It's really hard to see, because Europeans master the art of hiding money from the official channels to avoid taxes.




magpie's picture

It is a time to study bullion flows / internal capital flight.

Maybe watch a country working on a defacto gold standard during (not yet) hyperinflation, e.g. Vietnam.

ElvisDog's picture

I'm not sure how it is in Europe, but in the U.S. the under-35's have little money to invest because they use that money to pay off their student loans.

DoChenRollingBearing's picture

Sudden Debt, you were just the kind of guy I was hoping would comment.  That's interesting that a whole lot of dough is leaving the EU.

Where would all that money go?

Zero Govt's picture

with 40% of Italian GDP black market (way to go:) i'm not sure how many Italians will be pissing their pants over this news 

my guess is it'll be about 12, all members of the cabinet, the only 12 people in the entire country that pays any attention to what S&P says

LaLiLuLeLo's picture

I concur. I've lived there and the economy is a complete farce. Their sovereign debt as a percentage of GDP is 120%. That's #2, right behind Greece with 158%. Why did it take S&P so long to see this? Their rating are total shit and most of us here should care less about whatever comes out of their vats. 

Heres the complete list



Zero Govt's picture

interesting chart, shame the UK wasn't in there because i think we have a £4 trilion national debt in a £1 trillion economy (Yikes!)

Regards the Italians i spent 2 months living there last year. One agency had 3 secretaries who couldn't organise a piss-up in a brewery. They spent their entire time filing their nails and fuking about on Facebook. I'd estimate it would take them 3 weeks to change a lightbulb!

Have you read Martin Armstrongs latest piece on the fall of the Roman Empire? Same problem as today ...non-stop entitlements bankrupted Rome, politicians making promises their arses can't cash. The exact same 'dumb' as Europe is in today. Why doesn't the State teach this history in State schools i wonder!



LaLiLuLeLo's picture

I could go on for hours citing different instances of societal degeneration (let alone institutionalized corruption) in Italy. It's only fiting that the distruction of the EU is emanating from the birthplaces of governance. I've been looking for someone who can connect the parallels of our time to that of the Roman empire. Grazie!


Modern intellectuals fail to teach history accurately because they always think 'It's SO much different this time' and we can curb human tendencies with ponzi schemes, accounting tricks and straight up DEBT. Nope; sorry. It's never different. Human beings, no matter what era they are in, maturate into the same frenzied greed. I'm hoping the Mayans were right and we awake from this slumber and rise to our true potential. If not, fux it--for tomorrow we die (or according to some wackjobs, today 6pm EST).

Zero Govt's picture

Yep the tools (tek) in our hands may change but nothing changes at all down the Centuries about human nature

all the Mayans needed to understand was the competition mechanism versus monopoly (of authority). Competition distributes power, monopolies (ie. Govt) hoard it

now factor what happens to human nature (our ego) when we gain control of a monopoly power structure rather than having to compete (to deliver value) every day? If we have to constantly compete it keeps your ego in check because we're only as good as the next effort and we have to please/answer to other people. If you are a sole authority or a corporate monopoly your ego runs amock, you answer to no one, and we all become Divas (power corrupts, total power corrupts completely)

this is why Govt attracts all the unproductive parasites in society such as corporate monopolists, socialists, marxists, fascists et al. Once inside the ivory tower of the monopoly State it breeds small parasites into big Diva parasites with unchallanged power, no competition or people to answer to contantly

Monopoly authority structures like the State, Judiciary, EU, IMF etc breeds big egotists, societal vandals, economic bankrupts and murderous maniacs (Hitler, Lao, Stalin, Bush etc) ....human nature (ego) left un-checked by social or economic competiton runs out of control, precisely what has happened throughout history

Govt is the problem, not the solution ...a problem of monopoly power

Freedom is the solution: free markets and a free society. Both are naturally competitive mechanisms and entirely self-regulating/governing (see nature)


LaLiLuLeLo's picture

"give them enough rope and they'll hang themselves"

What if those creating the problems also manufacture the rope? corporatist oligarchies only last as long as their people allow it to. What we need to find is a weak point and attack it without mercy. We need to find the rope factory haha

Zero Govt's picture

you take the rope (tax) away

the simplest, fastest and most effective way to bring down Govt is stop your paying taxes, which is public protest in its easiest form (even a couch potato has no excuse)

as soon as people and small business stop paying tax the Govt implodes, debt and all, in a matter of 2-3 weeks. It really is that simple. And as soon as the vast parasite protection racket that is Govt is gone the free market takes over... the corporate monopolists/dinosaurs will get torn to shreds in a very few years by free market competiton

...without society funding Govt who protects all great monopolies (Big banks, oil, healthcare, auto companies, pensions etc etc) with their array of competition crushing legislation, law, patents/copywright, health and safety, licenses, property rules etc etc, the monopolists no longer have Govt/social funding to protect their business

Stop paying your tax or find a way to opt out of this the biggest pillar propping up and funding the parasites of Govt and corporate monopolies: The Parasite Club

Tax is the key to the whole charade

DoChenRollingBearing's picture

This is what Chumba has been telling us too.  Looks like he has not been paying taxes.  He's walking the walk.

Where y'at Chumbawamba?  Haven't see you around much...

schizo321437's picture

Human nature is the problem.  

Zero Govt's picture

Yes absolutely human nature is at the heart of this but what i'm saying is the primary problem is systemic and boils down to a simple mechanism, competition versus a monopoly, and what this does to human nature (monopoly power like Govt brings out the worst of human nature, un-checked by natural social or commercial competition) 

our big social/economic problems are all systemic as a direct result of a very simple thing, Govt is a monopoly and what sole power/authority does to human nature versus what competition does to human nature)

in a competitive market business has to compete and consumers have a choice. This keeps the egos of businessmen in check as they have to constantly compete. If their heads go up their arse some harder or smarter business will bring their ego back down with a bump

With Govt sitting astride everything it just dictates from a central committee never having to compete, never having to please end-users, its ego not being 'checked' by competition. Govt is an ego trip with little checks and balances, almost unanswerable except the clown show elections every 4 years. Anybody given this sort of power well you know the saying, "power corrupts", it is much much more than just a saying

It is human nature that power goes to our heads/ego. That is the 'job' we have given the Govt, to be a monopoly over us/society/commerce. This is why Govt just gets fuking worse by the day, infringing on liberty, impoverishing us (Obummas just raided pensions) and the worst aspects of human nature, finger wagging, thuggery and warmongering

nobody should be given such power, it must be left in the hands of us, a free society, to choose individually for ourselves. Govt (monopoly power) promotes, breeds and multiplies the worst in human nature as we are all quite capable of being Divas, tyrants and Hitlers given sole authority power over peoples lives and finances

We need a free society for our own protection, to stop tyrants and parasites ever using our money to get leverage over all of us. The voting system cannot be trusted, it has failed in every country persistently and is constantly gamed by parasites and vested interests (the US election system is beyond a fuking corrupt joke)

our centralised all powerful monopoly system called 'democratic Govt" and what it does to un-checked human nature is now doing precisely what delusional human egos will do given too much power. Govt is out-of-control, in financial chaos (bankrupt so Obummas team is now robbing peoples pensions this week along with Hungary and France) and murderous lawless anarchy (3 wars in lands no European or American person has any beef with) ...the absolutely predictible human result of monopoly power on ego, on un-checked human nature

'Democratic Govt' is a social and economic monopoly power problem, the solution is freedom

legal eagle's picture

Whew, I am so happy the US does not have these debt problems or baby boomer demographics! At least Italy has a debt reduction plan, as hopeless as it is!

StychoKiller's picture

Bwahahahaha!  Now, squirt some seltzer down your pants! :>D

buzzsaw99's picture

Where was S&P when I was trying to decide which fraudulent RMBS to buy from IndyMac? Huh? The big 3 ratings agencies can't be sued, they merely give their opinions and opinions are like assholes. imo the ratings agencies should be downgraded to irrelevant status. Do your own due diligence and give zero weight to S&P, Moody's, Fitch, they would stamp a three week dead goat "usda prime" if you paid them enough.

Yen Cross's picture

 Buzz you are way too smart, to allow Fannie and Freddie to infect your portfolio.

ElvisDog's picture

The ratings agencies are proactive rather than reactive. To invest successfully, you need to know (or guess) where things are headed before they happen. S&P will never give you that information. They only re-state the obvious.

IdioTsincracY's picture

I think the EU is about ready to do away with anglo-saxon rating agencies that obviously go after the PIIGS to take attention away from the UsUk countries

Long-John-Silver's picture

Bar-B-Q Piigs drenched in Gipsy sauce with a little DSK play on the side.

Eireann go Brach's picture

Hey Rodent Freakfuck, the Irish women are not hairy, but they could drink your wankin fuckin faggot arse under the table any day! 

Rodent Freikorps's picture

Really? I'd be interested in doing some hands-on research to make sure that is true.

Yen Cross's picture

I love the beautiful green eyed(RED) waving hair of an Irish WOMAN.  I'm sure R/F was speaking of the old school. He is a man of good will.

DoChenRollingBearing's picture

I closely follow the replies of Rodent and Yen. They are two more of the gems we have here at ZH.

Yen Cross's picture

 I am a man of adjectives and verbs.

Yen Cross's picture

 You my foreign Friend are puzzling. I am well versed in the C, Language.

DoChenRollingBearing's picture

ZH somehow ate my original response to you...

I am "puro gringo" (as American 100% as they come), but lucky to be married to a lovely Peruvian lady (> 25 years).

I do a little SQL for our bearing import company in Peru, but an otherwise am mostly retired.


I still have enormous respect for the columns and replies here at ZH.  Viva ZH!

Rodent Freikorps's picture


Once you go Latina, you never go back.