INCRA Italy Rating Report 2015

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Rating: 7.2 (AA-)

italy

negative outlook

Transparency and Accountability

Public Sector Fiscal Policy

5.9

Monetary Policy

5.9

Social Cohesion

8.6

Capital Markets and Financial Risk

10

8

4

7.2

2

7.4

• Flexible political system able to cope with crises

2

4

6 6.1

• Broad and deep revenue base • Strong tradition of rule of law

6.9

6

• Traditionally high personal savings rate

• Modest primary surpluses

7.7

6.6

• High per capita income

• Dynamic small and medium enterprise (SME) sector

Rule of Law

Economic Fundamentals

Strengths:

8 10

Future Resources

• Highly developed social safety net

Weaknesses: 7.2

7.7

External Sector 8.0

7.2

Strategic Capacity

7.2

Crisis Management

• High debt-to-revenue ratio

Implementation

• World’s third largest public sector debt • Ongoing massive refinancing needs

Adaptability

7.2 Macroeconomic Indicators

• High government debt-togross domestic product (GDP) ratio

Forward-Looking Indicators 7.2

• Poor growth for more than 10 years • Fiscal austerity exacerbating recessionary tendencies

Summary Italy is among the world’s richest countries, both in terms of accumulated assets and ongoing income generation. But since Italy joined the eurozone as a founding member in 1999, the Italian economy has, on average, underperformed. One explanation for this underperformance is the loss of Italy-specific exchange rate flexibility. In the pre-eurozone period, an economic crisis inevitably triggered a significant depreciation of the Italian lira, the country’s former currency. Lira depreciation allowed the Italian economy to adjust relative prices, vis-à-vis the world, through the exchange rate rather than solely through structural reform. This enabled Italian governments to undertake major structural reforms, but at a pace in tune with the ability of its

• Significant contingent liabilities emanating from the financial system • Significant contingent liabilities emanating from eurozone bailout programs

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INCRA Italy Rating Report 2015 by Bertelsmann Foundation - Issuu