Italian Bonds Upgraded to Stable Outlook by Moody’s

Great Colosseum, Rome, Italy

Great Colosseum, Rome, Italy. IMG: via Shutterstock.

Last week, Moody’s credit ratings agency upgraded its outlook on Italian bonds to stable from negative, welcome news for the European country. The news came on the heels of Matteo Renzi’s successful ouster of Enrico Letta. Renzi will be the youngest ever Prime Minister of Italy. Renzi is the leader of Italy’s centre-left Democrats, is the former Mayor of Florence, and says that his coalition government will be based upon the same left-right alliance as Letta—but more ambitious.

The government changeover will hopefully end some of the political instability that has plagued the country, and Renzi hopes to push through dramatic economic reforms to get the Italy back on its feet financially.

Moody’s, however, says that the new government leadership did not affect its forecasts. Instead, the agency cited Italy’s debt stabilization and expected growth in GDP as primary reasons for the outlook upgrade.

“The first factor supporting the outlook change to stable is the resilience of Italy’s government financial strength, as reflected in the anticipated leveling-off of Italy’s general government debt-to-GDP ratio in 2014,” Moody’s said.

In that sense, Renzi’s takeover may only serve to improve the situation in Italy. “The broad consensus is that a Renzi administration would have both the ability and willingness to drive economic reforms through parliament and all that is seen as broadly positive for Italy,” said Chris Clark of ICAP, according to Reuters.

The upgraded outlook confirms Italy’s current bond rating of Baa2. The country’s economy is still emerging from a deep recession, but the expected improvements and reforms to economic and domestic structure may help to change that in coming years.

In a recent press conference, Renzi said that he hoped by July, when Rome inherits the European Nations’ presidency, Italy “will be able to ask what it wants of Europe, instead of just what Europe wants of Italy.”

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