ITALY – Italy’s pension expenditure was a factor in rating agency Standard and Poor’s decision to downgrade the country’s outlook from stable to negative.
“Yes the structure of government spending is an important factor that we assess when we assign ratings and outlooks,” said S&P analyst Moritz Kraemer on a teleconference.
“Italy is the country with the highest share of GDP spent in state pension payments and what that means is that it reduces the flexibility in the budget.”
“These are expenditures that cannot be curtailed at a short notice,” the analyst observed, adding the structure of public spending could not be changed “without making legislative and political controversial actions”.
The relative lack of flexibility “makes it hard” for Italy to correct any deficit compared with countries with greater flexibility to cut spending at short notice, Kraemer explained.
The political divide within the centre-right and left coalitions and the lack of clarity about their course of actions after next year’s elections also played a role in the downgrade.
“It will be difficult for either coalition to undertake a post-election consolidation strategy firm enough to embark on a course of sustained fiscal and structural consolidation,” S&P said.
“I really find this motive incomprehensible, because political divisions are the backbone of democracy,” was the reaction of welfare minister Roberto Maroni.
“I am not in a position to evaluate S&P’s forecast, not the crystal ball it uses," he continued. “If the forecast has been influenced by political division, it think is not very reliable.”