Prime Minister Giorgia Meloni has returned to claim the work carried out by the Italian government to secure the confidence of investors, markets and also Italian families towards BTPs and government bonds, also citing the promotion” arrived in recent weeks from the four rating agencies Standard & Poor’s, Fitch, DBRS e Moody’s, the latter the most feared due to the threat of a downgrade to “junk”. The threat was then officially foiled last Friday, November 17th.
The confidence of Italian markets and families in Italian government bonds was trumpeted by Meloni in response to theformer Prime Minister and leader of Italia Viva, Matteo Renzi, during Question Time in the Senate.
This is what we read in the transcript of the Question Time of the Prime Minister Giorgia Meloni yesterday, Thursday 23 November.
“With all due respect, please note that I’m not saying this – said Giorgia Meloni – I think it’s clear for everyone to see how the confidence, for example, of investors and markets in the Italian economy has grown in recent months. With all due respect, I think the promotion of four rating agencies that are usually not ‘good’, so to speak, on these matters and the fact that families are very willing to buy our government bonds, that the spread is at its lowest level for a long time and that the Italian stock market is growing more than all the other European stock markets are growing are data that say something more than valuations – legitimate, obviously – of the opposition”.
Meloni added:
“And look, we did it in full coherence, Senator Renzi: I heard you say that I would have said that we needed to leave the euro; I don’t remember saying that we needed to leave the euro, while I remember saying that Italy could stay in Europe with its head held high and that’s exactly what we are doing and I think she realizes that.”.
About that, it is worth remembering, as, among other things, a fact checking article published on the site had done Political report card that, “in March 2014, a couple of months before the European elections, during a rally Meloni had declared that Italy had to say «clearly» to Europe: «We want to leave the euro: and if you think this is a problem for the euro, then convince us to stay.”
Something that another article from Pagella Politica, but not only, has remembered well in the last few hours, refreshing the memory of the Prime Minister.
Italy debt rating: what S&P, Dbrs, Fitch and Moody’s have announced
As regards the response given to Renzi regarding the actions of the four rating agencies, the facts were the following:
The rating agency Standard & Poor’s it was the first of the four large rating agencies cited by Meloni to confirm the rating of the Italian public debt, on 20 October.
S&P Global confirmed the BBB rating (rating two steps higher than the junk rating) on Italian debt, with a stable outlook.
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The agency confirmed its judgment a few days before the last ECB meeting. The other three expressed their opinions in the days following the meeting of the Governing Council of the European Central Bank.
The ratings agency DBRS Morningstar announced on Friday 27 October that it was leaving the rating on Italian public debt unchanged at “BBBH”, confirming the stable outlookin the aftermath of the Eurotower announcements.
Dbrs Morningstar reiterated its assessment with reference to the support of the ECB from which Italy and, specifically, its BTPs, continue to benefit.
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The day before, in addition to leaving euro area rates unchanged for the first time since July 2022, and after ten consecutive monetary tightening, Christine Lagarde’s ECB had also confirmed what is considered the last BTP bailout, among the operational ones, still active: i.e. the PEPP or even pandemic QE.with which, according to some experts, first and foremost, the European Central Bank is, among other things, locking down Italian government bonds in particular.
Just as S&P did and as they did in the following weeks the rating agencies Fitch and Moody’s, Dbrs also cited the strong assistance to Italy represented by the implementation of the PNRR and, therefore, by EU funds. Dbrs wrote, looking instead at Italy’s fundamentals:
“Ratings remain limited due to a very high level of public debt, weak GDP growth potential and a political environment that hinders the government’s stability and, also, its ability to manage economic challenges” , also fearing the risk that the EU Commission decides to “start an excessive deficit procedure against Italy in 2024”.
The numbers contained in the Nadef (Update note to Def)on the other hand, especially those relating to the deficit-GDP ratio, had immediately worried those who invested in BTPs.
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Having said this, Dbrs recognized the commitment of the Italian government, aimed “at significantly reducing the structural deficit and limiting the growth of net primary expenditure in the future”, while warning that the Meloni government “is planning modest fiscal easing extending tax cuts that are likely to continue beyond 2024″, in a context in which Italy will face “weaker GDP growth and high interest expenditure”.
It was then the turn of the Fitch rating agency which, on Friday 10 November, confirmed the rating of Italian public debt at BBB, two steps above the junk rating, simultaneously reiterating the stable outlook:
“Italy’s rating is supported by its large, diversified and high-value-added economy, by its membership of the euro and by solid institutions compared to the median level of other economies – we read in the Fitch note – These aspects of credit balance weak macroeconomic and fiscal fundamentals, in particular a very high government debt, an accommodative fiscal approach since the outbreak of the pandemic, the more moderate potential for GDP growth and, more recently, the higher rate environment.”
Fitch has therefore highlighted the strengths of the Italian economy, warning, however, that Italian debt remains high, in the face of a fiscal policy destined to become more expansionary. Fitch also cited the assistance that the implementation of the PNRR will give to Italy’s growth.
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Rating Italy passes Fitch test, BTP rates and spreads down. But Moody’s fears junk debt
On November 17, 2023, Moody’s long-awaited judgment finally arrived. No junk for Italy. But not even any promotion, if you look at the rating, or rather the judgement. It is true that Moody’s has revised the outlook on the rating of Italian public debt upwards, but the rating was confirmed at “Baa3”, nailing Italy’s creditworthiness to the level it was at before, i.e. higher than the “junk” rating ” just one step.
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Returning to the phrase uttered at the Senate Question Time by Meloni, the Prime Minister also cited the success of the BTP Valore, where she underlined that families are very willingly buying “our government bonds”.
And the facts prove her fully right. Right from the start, when a few months had passed since the birth of her government, the prime minister had made clear her intention to to participate to a greater extent in the Italian public debt, confirming what the Minister of Economy and Finance Giancarlo Giorgetti had said, who had repeatedly sponsored the idea of a BTP that would be able to encourage the “direct involvement of Italian savers”. So much so that initially there was talk of an autarchic BTP.
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(currently being written)