20th September 2011
The FT quotes Sony Kapoor, head of Redefine, a Brussels-based think tank saying: "This is a downgrade of EU and Italian politicians. The miserable failure of EU leaders to tackle the problems posed by Greece does little to inspire any confidence that the much larger and more urgent problems faced by Italy would be managed any better."
The Economic Times reports that Italian Prime Minster Silvio Berlusconi has slammed the decision. "The assessments by Standard & Poors seem dictated more by newspaper stories than by reality and appear to be negatively influenced by political considerations," he said.
The Guardian uses its business blog to give a blow by blow account, but concludes that markets have taken things more calmly than expected.
Italy's borrowing costs are up by 0.1 per cent on ten year bonds with European shares and indeed the euro falling then rising again.
The Telegraph gives the full report of the S&P decision including the agency's view that "the downgrade reflects our view of Italy's weakening economic growth prospects and our view that Italy's fragile governing coalition and policy differences within parliament will likely continue to limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment".
Azad Zangana, European Economist at Schroders agrees with this reasoning behind the downgrade, but also adds, "It is worth noting that S&P have kept Italy's outlook on negative watch, signalling that further downgrades are possible. Given our more negative view on growth in Italy, we think further downgrades appear likely."
The Telegraph quotes a range of analysts. But arguably Robert Albertson, chief strategist at investment bank Sandler O'Neill & Partners is the least typical and least convinced by the attention paid to ratings.
"It [ratings] is worse than an art form. It is a lag indicator and it is misleading…The attention given to it is out of proportion with the issue. And the issue is: everyone has to fix balance sheets whether they are American homeowners or the Greek government. The degree of this and how you look at it, I don't think they come from ratings. I think they come from forward-looking assumptions about what these countries will all do and how they will fare."
Some experts were surprised that it was S&P and not Moody's that cut Italy's rating. Only yesterday Citywire was reporting Barclays Capital's belief that Moody's would downgrade the country possibly by two notches in a month's time. This could, of course, still happen.
But Azad Zangana doesn't see this as a major game changer, "In terms of the impact on the real economy and the crisis, we do not think this downgrade, and future downgrades, change the path of the eurozone crisis in their own right, but they do reflect the growing risk of a disorderly outcome."