Italy is the most serious risk for the euro currency as the crisis in Europe is deepening, because of highly leveraged debt, high cost of credit and high financing needs this year, Fitch Ratings considers, according to the Wall Street Journal (WSJ). Italy this year has to buy back a “discouraging” volume of bonds, and the lack of an agreement between European leaders on implementing a “firewall” – a protection mechanism to stop the expansion of crisis – in the region put pressure on the country rating for Italy, said Tuesday, at a conference in London, the Fitch head of global country ratings division, David Riley.
The absence of a mechanism to restrict the credibility crisis in Italy should be a serious concern for the euro area, he warned. The spread of approximately four percentage points between the interest paid by Italy and German bond yields reference, along with zero economic growth, could be an “explosive combination” for Italy. Country’s solvency could be provided by a spread of only 1.5 percentage points and a 1.5% economic growth, Fitch estimates.
The agency might downgrade in the near future Italy’s rating, currently at A+. Riley said that Fitch will present by the end of January decisions on all ratings of eurozone countries under the portfolio assessment with a negative outlook, excluding France. He said that the Greece ousting from the euro area remains “an option”. Greece still has the potential to push the euro area in a deep financial crisis and debt reduction of the Greek state towards the private owners of bonds by 60% would not significantly reduce the indebtedness of the country, considers the director of Fitch.
Fitch gave Greece a CCC rating and could relegate the country to a rating to reflect its default. In other news, the euro climbed to an overnight high of 1.2808 against the US dollar.
