On Friday January 13, Standard and Poor's has simultaneously reduced the credit ratings – the so-called “ratings” – of nine European countries belonging to the single currency area. Apart from other considerations, the "downgrading" of the assessments on Italy and on the other countries highlights the risk of an unfavorable combination between the worsening of the economic activity and other factors. These other factors deserve attention.
In the report drawn up by S&P's, reference is made several times to governance problems suffered at the European level, in defining, coordinating and implementing the appropriate actions to address the common crisis. "An open and prolonged dispute among European policymakers over the proper approach to address challenges", an open and prolonged dispute between European governments is counted, verbatim, among the factors justifying the rebates. And, in the section dedicated to Italy, the cost imposed by the drawbacks of European governance is even contrasted with the greater capacity shown by Italy in formulating and implementing economic policies capable of mitigating the crisis: "the weakening policy environment at the European level is to a sufficient degree offset by Italy's stronger capacity to formulate and implement crisis-mitigating policies”. Seen from our point of view, it is about an important recognition for Italy. It's almost a reversal of perspective, where the conduct of Rome is judged more effective than that of Brussels. Sadly, that wasn't enough to prevent our downgrade.
Pro malo, bonum. The downgrading of the ratings of European countries indicates how important progress in terms of coordination and effectiveness in common European governance could be be useful to Europe and positively reverberate also on the opinion that the rating agencies and the markets formulate on the creditworthiness of the countries of the single currency. It is a cooperation and coordination bonus that must be seized. It would also be a decisive factor in correcting the anomaly that is found today when comparing the ratings of large member countries of the Eurozone and that of the United States, bearing in mind the size of the respective public debts in relation to GDP.
Let's take some examples. France and the United States enjoy the same AA+ rating. However, France has a public debt which, in relation to GDP, is and – predicts the International Monetary Fund in the latest World Economic Outlook – will continue to settle below 90 per cent, while the United States has seen its ratio grow by a few years from 60 to 100 per cent and they risk, in the years to come, further and significant increases. In its latest forecasts, the International Monetary Fund assumes that the public debt-to-GDP ratio of the United States could rise to 115 per cent in 2016, a value even higher than what could be the level at the same date, again according to the IMF of Italy.
In the next five years it is probable that the public debt in relation to GDP will decrease in Italy and increase in the USA and that the United States should overtake us in the unsought-after ranking of this key indicator. Discounting this consensus scenario, the five notches that now separate our rating from the US rating are perhaps too many. It is well known that the judgments of the rating agencies tend to look back rather than forward. It's up to us, Italians and Europeans, to show foresight.
