Its earlier AA rating was due to the unspoken assumption that any eurozone member had an explicit guarantee from its fellow countries. This was a fallible assumption, especially when Italy should probably never have been allowed to join the euro. At the time, it used a number of one-off measures to squeak in – not that other countries were saints in this regard, but Italy’s one-offs were of an unparalleled scale and cheekiness.
Now, the four-member coalition government squabbles while the ratio of Italy’s debt to GDP remains above 100%. The country is the third largest sovereign debtor in the world after the US and Japan, but unlike them, its anaemic GDP growth rate, forecast at 1.2% this year, will not help the debt situation. The S&P downgrade will also hurt, as Italy will probably be forced to pay more for its debt.
