S&P: So, yeah, Italy’s still a mess…

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Standard & Poor’s today cut Italy’s credit rating from BBB+ to BBB, despite signs of stabilization across the European periphery. Last year, markets might have gone crazy over this news; today, a downgrade seems far less important.

italy 10-year government bond yields
Last July, the Italian government’s borrowing costs topped 6.5%—nearing the psychologically scary threshold of 7%, after which other peripheral European countries have taken a bailout. Today, Italian 10-year bonds yielded 4.41%, according to Tradeweb.

That said, Italy’s economic problems aren’t anything to scoff at. Unemployment remains high, particularly among the youth; 38.5% of young people were unemployed in May on a seasonally adjusted basis. Italy’s statistical agency predicts the country’s economy will contract by 1.4% in 2013; S&P pegs the contraction at 1.9%.

The ratings agency says its outlook remains “negative,” meaning there’s at least a one-in-three chance of another downgrade by the end of next year. Italy’s political parties weren’t able to form a coalition on their own after elections earlier this year, and despite the pragmatism of current PM Enrico Letta, power struggles threaten to slow down any progress on economic reforms.

italy unemployment youth unemployment