For all EU Member States considered by TS Lombard, this risk premium is closely related to the average credit rating of the three major agencies Standard & Poor's, Moody's and Fitch. The only outlier is Italy, where the spread is significantly higher than the rating justifies.
In order to regain balance in the longer term, either the spread to Germany would have to fall by 2 percentage points or the rating of Italy would have to be reduced by three levels.
The rating agencies, which should be reclassified toward the end of the month, are unlikely to ban Italy from junk (non-investment grade, Ba1 or worse), according to TS Lombard. Too massive would be the market distortions that would trigger such a step.
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