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S&P: Ratings and
Outlooks on Italian Regions Equalized With Those on the Republic of
Italy
MADRID Dec. 01, 2003--Following the recent affirmation of its ratings
on the Republic of Italy (AA/Negative/A-1+)--see the Nov. 25, 2003,
media release entitled "Republic of Italy 'AA/A-1+' Ratings Affirmed;
Outlook Still Negative" on RatingsDirect, Standard & Poor's Web-based
credit analysis system--Standard & Poor's Ratings Services said that
it has taken the following rating actions on the four Italian regions
it rates:
-- Revised its outlook to negative from stable on the Regions
of Emilia-Romagna, Tuscany, and Valle d'Aosta. At the same time,
Standard & Poor's affirmed its 'AA' long-term issuer credit ratings on
these three regions; and
-- Lowered its long-term issuer credit rating on the Region of
Lombardy to 'AA' from 'AA+'. The outlook, which was previously stable,
is now negative.
"The rating actions reflect the lack of sufficient structural measures
taken by the state to strengthen Italian regions' financial and
managerial autonomy, despite the principles established in the 2001
constitutional reform," said Standard & Poor's credit analyst Myriam
Fernández de Heredia.
The expected improvement in autonomy was a key premise for Standard &
Poor's delinking of its ratings on Italian regions from those on the
sovereign in 2001, as it was to give the regions the tools to respond
to changing economic and political circumstances without damaging
creditworthiness.
On June 19, 2003, Standard & Poor's issued a release specifying the
three requirements to maintain its ratings on the Italian regions
above those on the sovereign:
-- The strengthening of the regions' financial autonomy and
taxing power;
-- A stable relationship between the central and regional
governments that would prevent any unfavorable change in revenue
flexibility or expenditure responsibility through unilateral measures
taken by the central government; and, finally
-- The maintenance of economic and financial indicators well
above the national levels.
The first two of these conditions have not been met. The Italian
government has announced that it will maintain in 2004 the partial
freeze on Italian regions' tax autonomy in effect throughout 2003, as
well as other measures, such as delayed disbursement of shared taxes
and a cap on operating-expenditure growth. These last two measures,
while positive for budgetary stability, constrain the regions'
financial autonomy.
Standard & Poor's considers these uncertainties regarding the
federalism and devolution process to be important, and believes that
they are unlikely to be cleared up within a two-year timeframe (the
maximum period covered by its rating outlooks). The current economic
and budgetary woes of Europe in general and Italy in particular could
also constrain the practical implementation of this process.
"Positive developments, such as the slight increase in regional
managerial autonomy in several key expenditures areas (including
health care), the freedom of regional governments to create minor new
taxes, and a more robust financial profile than five years ago, do not
offset the important structural constraints on autonomy that persist
and impede the continued delinking of our ratings on the Italian
regions from those on the Republic of Italy," added Ms. Fernández de
Heredia.
Moreover, the timeframe for the practical implementation of the new
constitutional reform--with the creation of a new federal senate--that
is currently under discussion and that could eventually improve
intergovernmental relations between the regions and the state goes far
beyond the timeframe for the outlook on the regions' ratings. The
linking of Italian regions' ratings to those of the sovereign also
reflects a framework of intergovernmental relationships that permits
the central government to take unilateral measures that can have a
negative impact on the regions' creditworthiness and curtail their
autonomy, while the regions lack sufficient resources to mitigate such
impact.
The negative outlook on all four regions reflects that on the Republic
of Italy, which recognizes the country's weak fiscal balance and the
lack of clarity in the central government's structural reform strategy.
Failure to address fiscal imbalances effectively through lasting
structural measures could lead to a lowering of the ratings on the
sovereign in 2004. Conversely, the outlook will be revised back to
stable if credible and sustainable policies point toward a return to
the general government structural primary surpluses of the late 1990s,
near 5% of GDP, which is the government's stated medium-term objective.
Press Contacts:
London: (44) 20-7826-3605
Paris: (33) 1-4420-6657
Frankfurt: (49) 69-33999-225
media_europe@standardandpoors.com
Analyst Contacts:
Myriam Fernández de Heredia, Madrid (34) 91 389-6942
myriam_fernandez@standardandpoors.com
Vittoria Ferraris, Milan (39) 02 72-111-214
vittoria_ferraris@standardandpoors.com
Massimo Visconti, Milan (39) 02-72-111-206
massimo_visconti@standardandpoors.com
PublicFinanceEurope@standardandpoors.com
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