PARIS (MNI) – Italy’s Treasury Saturday confirmed its 2014 target
for a balanced budget and promised that faster reforms were on the way,
after Standard & Poors downgraded its outlook on Italy’s A+ sovereign
debt rating from “stable” to “negative.”

S&P justified the shift by the risk that weaker growth and a
potential “political gridlock” might derail the government’s
consolidation program before the 2014 target was met. The agency said
there was a one-in-three chance that it might lower its rating on
Italian sovereign paper in the coming two years.

The Treasury countered, noting that the macroeconomic data on which
S&P had confirmed its previous ‘stable’ outlook in December had not
deteriorated in the meantime and in fact had even improved in some
cases.

“The sole new element appears to be the risk of political
paralysis, which can be excluded entirely,” the Treasury claimed in a
press release.

Moreover, the Italian government has launched and “will intensify”
a series of reforms, the Treasury said. Measures to achieve a budget
balance by 2014 are in an “advanced stage of preparation” and should be
approved by Parliament by July, it added.

The Treasury also argued that S&P’s latest assessment was “very
different” from those of the IMF, the OECD and the European Commission
in recent days. It noted that hard data for economic growth and public
finances had “consistently” surpassed the government’s own forecasts,
which have always been “extremely cautious.”

“As demonstrated in past years and the final years of the crisis,
Italy has been, is and will remain a country with the economic and
political resources needed to respect fully its commitments,” it added.

For Goldman Sachs analyst Francesco Garzarelli, the agency’s call
“comes as a surprise in terms of timing, but it crystallizes information
already in the public domain.” He cited the slowdown in domestic demand
in past months, the poor showing of the senior partner of the ruling
center-right coalition in the first round of local elections earlier
this month, and the gradual loss of “consensus” within the government.

Still, Italy’s “relatively weak credit fundamentals are fully
reflected in its present rating,” Garzarelli argued. “These are not
deteriorating rapidly and have ample scope to improve if structural
reforms and further fiscal adjustments are passed.”

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