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Image: Getty Images/AFP/E. Dunand

Moody's plays down Italian risk

October 2, 2018

The ratings agency sees only a small possibility that Rome might exit the currency bloc, despite a senior official saying the country would be better off. The news comes as Italy's debt faced a fresh bout of selling.

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International ratings agency Moody's said in comments released for publication late on Monday that it would provide an updated decision on Italy's credit rating by the end of October, with any review for a possible downgrade depending on Italy's debt trajectory and economic growth.

The agency currently rates Italian sovereign debt at Baa2 with a negative outlook, which is on the verge of falling below the investment grade category. Moody's delayed its scheduled review from September 7 as it was waiting to see the outline of Italy's budget for next year.

"Italy has long had an elevated debt burden and has long had problems generating economic growth and the political environment that can allow structural reform efforts to take place is also in question," Sarah Carlson, senior vice president in the Moody's sovereign team said in a conference call. "It comes down to the debt trajectory and growth which is linked to structural reform effort," Carlson added.

Read more: Italy and the EU clash over budget plan

At the same time, the agency played down fears for eurozone stability stemming from Italy and the possibility of the country exiting the single currency. It noted that Italians had shown reluctance to leave the euro, and added that the country was "more integrated with Europe than has been feared over the past few years."

Market concern

Italian financial markets and the euro sold off earlier on Tuesday after Carlo Borghi, a lawmaker from the League party —one of the two ruling parties — said Italy would be better off financially if it were outside the 19-member eurozone.

"I'm truly convinced that Italy would solve most of its problems if it had its own currency," Borghi said in a radio interview. After selling off initially, Italy's government debt recovered somewhat after Borghi made clear that Rome was not planning to leave the euro.

Read more: Italy: 100 days of a populist experiment

Nevertheless, investors remain concerned that a higher-than-expected budget deficit of 2.4 percent will weaken Italy's ability to service its debt pile of 131 percent of gross domestic product (GDP).

Last week, the Italian coalition forced through an eleventh-hour spending plan that would see the country's budget deficit violate European Union budget rules.

100 days of Italy’s government

uhe/aos (Reuters, AFP)

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