Ratings agency Standard and Poor's on Friday warned that moves by Italy to correct its public finances faced "risks", a day after the government's adoption of a 47-billion-euro austerity plan. "Despite these measures, however, we believe substantial downside risks to the government's debt-reduction plan remain, primarily due to Italy's weak growth prospects," the agency said after the plan was unveiled on Thursday.
In its statement, the agency added there was "a one-in-three likelihood" that it could lower Italy's credit rating within the next 24 months. Standard and Poor's said some of the measures, which still have to be approved by parliament, could increase competitiveness including through an overhaul of the tax system and cuts to higher-bracket public sector wages.
It also welcomed planned reforms to the pension system starting in 2014. But it added that due to Italy's low growth "far more substantial microeconomic and macroeconomic reforms will be required to incentivise private investment and match wage levels with productivity."
Economic growth in the first quarter in Italy came to just 0.1 percent. "Without such measures, we believe Italy's economic potential will not be realised. This will imply insufficient wealth creation to deliver meaningful declines in the general government's debt-to-GDP ratio," it added. Italy has one of the highest public debt levels in the world - equivalent to around 120 percent of gross domestic product. The agency also made reference to current political troubles for the ruling coalition following defeats in local elections and a round of referendums. "We believe that extended political gridlock could contribute to fiscal slippage," it said.
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