Credit Rating Anxiety Hits Italian Banks

“The Italy-Spain derby is a problem for Europe,” the top financial blogs commented yesterday after the losses of the Milan and Madrid stock exchanges. Spain’s and Portugal’s banking crisis is seen as a danger for its impact on Italian banks. Yesterday, the Italian bank Unicredit’s shares were suspended due to excessive volatility. This happened without a clear reason, according to analysts. “The fact that Spain and Italy are often put together when it comes to crisis makes investors even more convinced the two countries are connected,” one analyst said. “If Spain falls apart, Italy is at risk too.” When it comes to banks, however, Spain and Italy do not have much in common. While Italian banks have full access to capital, Spanish banks depend on the ECB, which in March gave Spain 28 percent of its loans. It’s important to notice that the recapitalization of Spanish banks has yet to happen. Why, then, are Italian banks targeted as much as Spanish banks? Some believe the reason is that the recession is hitting both countries hard, and there are no programs in place to address it. Others add that, especially for Italy, the real risk for banks and companies comes from the recession that is affecting international trade. Some also fear that once the recession is over they won’t be able to take advantage of growth. While newly industrialized countries were leading to a new division of labor and of production, we failed to develop effective industrial policies, and that left us without a clear industrial identity. The Spanish crisis is contagious, of course, but it’s the lack of industrial policies that makes us unappealing in the eyes of international investors. This can cost us a lot: if companies do not sell their products abroad, our banks will suffer, and that will in turn affect the stock exchange and the spreads, thus producing crisis and uncertainty, as happened last summer. But this is not the only problem. There may be another downgrade on the horizon. Only a few people realized that the reason behind yesterday’s losses is that rating agencies published the calendar of their next rating revisions. Traders already think that Italy and Spain are at risk. And they are certainly right, since Moody’s will start its rating revision next week by looking at Italy. Then it will be Spain’s turn, starting on April 23. Without growth or reforms, it will be difficult to convince investors that we are not like Spain.