Fitch Ratings Managing Director David Riley said euro-area countries may face renewed pressure on their sovereign debt ratings if they don’t make headway on resolving the debt crisis by year end.
Recessions in Spain and Italy “are eating away at political support for austerity and political support for the euro,” Riley told Francine Lacqua on Bloomberg Television’s “On the Move” today. “If we don’t see progress by the end of this year, we can see further rating downgrades.”
Easing the crisis depends on European governments implementing the terms of their June agreement on creating a regional banking supervisor and the European Central Bank creating a framework to offer countries further support, Riley said. Addressing the seniority of any ECB loans to cash-strapped governments is a key issue that needs to be clarified, he said.
The ECB’s announcement that it’s ready to purchase government bonds in tandem with Europe’s rescue funds along with governments’ latest efforts mark “a big step in the resolution of the crisis” if they can be implemented, Riley said. “But that’s a big ‘if.’ They’ve built up a lot of expectations.”
For Italy, the political risk related to Prime Minister Mario Monti’s departure from office next year now outweighs economic threats, Riley said.
“The current Italian government has a lot of credibility,” he said. Monti needs to advance as quickly as possible to “create some kind of light at the end of the tunnel” before he is replaced.