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 On a day of credit updates scheduled for three of the bloc's top
four economies, Standard & Poor's affirmed its ratings on France,
while Fitch raised its outlook on Italy and was expected to boost
its view of Spain after Europe's markets close.
S&P also raised its rating on Cyprus, suggesting the recovery is
spreading to the peripheral regions left most exposed to the euro
zone's financial crisis, in what was its second upgrade of the
bailed-out country since it came close to financial collapse last
year.
Borrowing costs for the countries worst hit by the crisis have
fallen sharply this year as the European Central Bank's loose
monetary policy encourages investors hunting for returns to bet on
their recovering economies.
Fitch's outlook upgrade on Italy to 'stable', with the sovereign
rating affirmed three notches above junk at 'BBB+', follows a rise
earlier this month of its outlook on bailed-out Portugal to
'positive' from 'negative.'
Italy was a fulcrum of the debt crisis a couple of years ago
together with Spain, whose sovereign rating many investors and
analysts in Madrid expect Fitch to upgrade or underpin with an
improved outlook later on Friday.
S&P confirmed France's long-term rating at 'AA' with a stable
outlook.
BLAME GAME
During a wave of euro zone credit downgrades during the financial
crisis, policymakers and economists blamed ratings agencies for
exacerbating investor flight from the region — blame the agencies
say is misplaced.
Prosecutors in southern Italy have requested that two ratings
agencies stand trial for allegedly prompting a sell-off of Italian
assets with downgrades between 2010 and 2012. The agencies say the
accusations are baseless.
Today, the mood seems to be shifting in Europe.
The euro zone's recession ended in the second quarter of last year.
Market pressures on weaker countries has eased, in part because of
domestic reform efforts but also due to an ECB pledge to do whatever
it takes to save the euro.
For France, S&P praised efforts by the country's Socialist
government to boost competitiveness by reducing labor costs and
corporate taxation.
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France on Wednesday signed-off a fiscal package including 50 billion
euro in spending cuts between 2015 and 2017, as it raised its
official deficit forecasts for this year and the next.
In Italy, Fitch cited improved funding conditions, as well as an end
to the country's worst post-war recession, among reasons to raise
the outlook.
The agency also mentioned recapitalization efforts at Italian
banks, which are planning to raise about 10 billion euros in total
from investors and are less likely now to require public aid.
However, it warned that with public debt set to peak at 135 percent
of national output this year and stay above 130 percent until 2017,
Italy had limited ability to react to potential shocks.
"Generally, and for Italy in particular, the upwards 're-rating'
process is very slow and reflects the fact that risks remain that
cannot be ignored," Alberto Gallo, head of European macro credit
research at Royal Bank of Scotland, said.
Fitch last cut Italy's rating to 'BBB+' in March 2013, following
inconclusive elections that led to a two-month political stalemate.
Fresh political paralysis could hurt the rating, Fitch warned.
Italian Prime Minister Matteo Renzi leads a coalition of former
rivals he inherited from his predecessor Enrico Letta, whom he
ousted in a party coup earlier this year.
(Additional reporting by Renee Maltezou in Athens, Giulio Piovaccari
in Milan, Julien Toyer in Madrid, editing by Alessandra Galloni,
John Stonestreet)
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