Italy can stand the US rating agencies’ meaningless degrading

Mario Draghi, Governor of the European Central Bank and Chairman of the Financial Stability Board.

Mario Draghi, Governor of the European Central Bank and Chairman of the Financial Stability Board.

Last Friday the Fitch rating agency downgraded Italy’s long term creditworthiness to “BBB+” from “A-“, with negative outlook. The American firm did that with a delay of many days after the Italian elections, citing as reason the unconventional results of the vote. It is important to note however that capital markets themselves, after the initial negative reaction to the Italian supposed political stalemate, had already regained their sangfroid and had positive assessed Italy’s long term credibility, with the risk premiums restored to more or less their previous levels. It was exactly at that point in time where Fitch came out with its own assessment, as if it wanted to correct the markets and bring about again some unsubstantiated fears over the political life of the 8th larger economy in the world!

Given that the three American rating agencies are confronted with mounting problems in Europe, over the legality, quality, transparency and the non-biased character of their ratings, with a pending court case in the Italian courts, this Fitch announcement had a revengeful essence. On top of that the European Parliament last January adopted a regulation posing additional problems to the three American rating agencies operations in Europe. It must be reminded that there are already in place limitations to the functioning of Fitch, S&P and Moody’s under previously adopted EU legislation.

Agencies under pressure in Europe

According to the recently adopted text by the European Parliament, “This regulation introduces a common regulatory approach in order to enhance the integrity, transparency, responsibility, good governance and independence of credit rating activities, contributing to the quality of credit ratings issued in the Union, thereby contributing to the smooth functioning of the internal market while achieving a high level of consumer and investor protection. It lays down conditions for the issuing of credit ratings and rules on the organisation and conduct of credit rating agencies, including their shareholders and members, to promote credit rating agencies’ independence, the avoidance of conflicts of interest and the enhancement of consumer and investor protection”.

The European Parliament has also confined the over-reliance on credit ratings by Eurozone financial institutions, by stating that financial organisations of any kind “shall make their own credit risk assessment and shall not solely or mechanistically rely on credit ratings for assessing the creditworthiness of an entity or financial instrument”. By the same regulation the EU Parliament has set limits to the use of the three rating agencies’ services by the European authorities, ordering that the “European Systemic Risk Board (ESRB) established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council…shall not refer to credit ratings in its warnings and recommendations where such references have the potential to trigger mechanistic reliance on credit ratings”.

In short, Europe is gradually but surely shutting the door to the three American ‘rating Musketeers’. It is difficult to know how much money Fitch, S&P and Moody’s are about to lose from Europe, but it must be a lot.

Italy is self-sustainable

Returning to the subject matter of this affair, that is the creditworthiness of Italy, one has to take seriously into account the very positive and relevant comments made by Mario Draghi, the governor of the European Central Bank, during the Press conference after last Thursday’s ECB’s governing Council. While answering a reporter’s question, about “the uncertainties after the last elections and the dysfunctional Italian political system”, the governor said “as you have seen, markets – after some excitement immediately after the elections – have now reverted back more or less to how they were before. I think markets understand that we live in democracies… All in all, markets were less impressed than politicians and you. You also have to consider that much of the fiscal adjustment Italy went through will continue on automatic pilot. And also, if you consider this year, the net supply of government bonds is considerably less than last year – if I’m not mistaken it’s about €30 billion. So it’s very much a matter of rolling it over. All this is happening in a general environment where we have many signs that confidence is returning to the financial markets of the euro area”.

An ‘export machine’

The ECB governor however forgot or his position did not permit to say that Italy is a totally different case than Greece, Portugal and Spain. Apart from the fact that it is the 8th largest economy of the wold, Italy has a particularly strong business backbone of small and medium outward looking enterprises. Those enterprises offer an array of products and services as Germany and France put together. That is why those Italian enterprises managed to export an astonishing wealth of products of €365 billion during the eleven month period of January-November 2012. This was 5% more than during the same period of 2011. As a result Italy can cover its imports of goods with the value of its exports. Apart from that the country runs every year a hugely positive external balance in the services sector, based in the unbelievable dynamism of its tourism and transport.

Taking all those economic facts into account, it is not at all surprising that the country has managed to fare quite successfully through the unreliable, unstable and short-sighted system of its political parties. Over the past thirty years the average life span of any Italian government was around 11 months. That is why the country has developed a civil service, mainly in the law enforcement and judicial sectors, which are a paradigm of efficacy and robustness. In this way political uncertainty is nothing new to Italy and its economy has traditionally come to terms with that. It is not by chance that Italy covers with its own savings and internal capital accumulation, the largest part of the refinancing needs of the country’s large sovereign debt.

As a result no rating agencies neither hits below the zone by “journalists” can turn the Italian debt into an opportunity for the American money sharks, to profiteer and make paper wealth out other people’s sweat. Italy and Italians are not easy targets and can strike back even in the heart of New York. Why not? Is the other side any better?

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Making money from meeting the SDGs? An overarching approach to sustainable development.

“BEUC cautions against TTIP that would seek to align EU and US chemicals management frameworks”

China Unlimited and the Chinese dream

Google strongly rejects EU antitrust charges and now gets ready for the worst to come

A Sting Exclusive: “The challenge of Society’s digital transformation”, Spanish Minister of Spain for Industry, Energy and Tourism José Manuel Soria live from European Business Summit 2015

Brexit: No deal without marginalizing the hard Tory Eurosceptic MPs

Merkel: Nationalism and egoism must never have a chance again in Europe

OECD joins with Argentina to fight financial crime

The refugee crisis as a young Nigerian doctor sees it

3 charts to help you understand the American shale boom

UK: Crawley group wins European Citizens’ Prize

Rising landmine blast toll in Afghanistan highlights long-term care needs of survivors

EU-Western Balkans summit in Sofia

Trump’s MAGA policy remains unchanged as EU warns to impose additional retaliation tariffs on US products

Have Europe’s Ukrainian wounds begun to heal?

Brexit talks stalled at launch; issues with European Court’s authority in Britain

What happens when the Eurogroup decides to help Greece

Berlin wants to break South’s politico-economic standing

VW diesel scandal and climate change: can increased independent car checks lead to cleaner mobility?

At last Britain considers a super-soft Brexit

Libya: ‘Substantial civilian casualties’ in Derna, UN humanitarian chief ‘deeply concerned’

Sanctions on Russia to be the biggest unity test at this European Council

Europe and UN form bulwark against ‘might makes right’ worldview, EU foreign affairs chief tells Security Council

A machine din

Hostages to a rampant banking system

UN chief welcomes re-opening of key Gaza border crossing

Report on EU trade defence – effective protection against unfair trade

New rules to help consumers join forces to seek compensation

Yemen: Major UN aid boost for ‘up to 14 million’ as country risks becoming a land of ‘living ghosts’

Quality Education on the table at the European Parliament

The Commission tries to stop the ‘party’ with the structural funds

UN launches drive to highlight environmental cost of staying fashionable

INTERVIEW: ‘Defend the people, not the States’, says outgoing UN human rights chief

The UK to split if May’s hard or no-deal Brexit is pursued

UN General Assembly President defends ‘landmark’ migration compact

The Juncker Plan at work: bringing investment back on track in Europe

Local innovation, international impact: SMEs and the ITU Telecom World Awards

COP24: Huge untapped potential in greener construction, says UN environment agency

Three myths keeping government procurement stuck in the past

Sahel States need international support ‘now more than ever’– UN peacekeeping chief

Why strive for Industry 4.0

This project in India helps people and tigers co-exist peacefully

UNICEF warns of ‘lost generation’ of Rohingya youth, one year after Myanmar exodus

Algeria must stop arbitrary expulsion of West African migrants in desert: UN migration rights expert

Commission proposes fishing opportunities in the Atlantic and North Sea for 2019

Rule of Law: The Commission opens a debate to strengthen the rule of law in the EU

Impacting society with digital ingenuity – World Summit Award proclaiming the top 8 worldwide

Berlin favours economic and social disintegration in certain Eurozone countries

Making the most of the Sustainable Development Goal 3: its overlooked role in medical education

European Citizens’ Initiative: Commission registers ‘Mandatory food labelling Non-Vegetarian / Vegetarian / Vegan’ initiative’

Oh, well, you are wrong, Google responds to the European Commission

COP21 Breaking News_05 December: Children Will Bear the Brunt of Climate Change: UNICEF

3 ways to nurture collaboration between universities and industry

Modern farming is harming the planet. Tech-driven permaculture could heal it

European Business Summit 2013: Where Business and Politics shape the future

EU Summit/Migration: Parliament calls for joint solutions based on solidarity

China is building 8 new airports a year

EU Budget: InvestEU Programme to support jobs, growth and innovation in Europe

‘Power is not given, power is taken’, UN chief tells women activists, urging push-back against status quo

More Stings?

Comments

  1. Great goods from you, man. I have understand your stuff previous to and you are just too great

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s