Italy Is Unlikely to Need Emergency Rescue, Fitch Says

Italy is unlikely to need a bailout as the euro area’s third-largest economy is in a better state than Spain, Fitch Ratings Managing Director Ed Parker said.

“Italy is much closer to getting to a sustainable macro-economic position,” Parker said in an interview in Oslo today. “It is now running a pretty small budget deficit, has a much lower current account deficit, doesn’t have these problems in the banking sector.”

Still, “Italy does have high levels of government debt so there is very little headroom there to absorb any further negative shocks,” Parker warned. “It is very dependent on the interest rate at which it can borrow, which is high, higher than its growth rate, and so it is in this situation where the market interest rate has self-fulfilling impacts on Italy’s credit worthiness.”

Fitch’s main scenario is that Italy won’t need external support, Parker said.

“If interest rates are lower, then Italy, after this year, won’t have to do a lot more fiscal consolidation,” he said. “Its budget deficit is already low and its government debt will be on a path of stabilization and decline.”