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S&P downgrades Italy’s debt outlook

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HOBSON: Now let’s get to the debt news out of Europe. Italy has had its debt outlook cut to negative by the ratings agency Standard & Poors. S&P cited poor growth prospects and excessive borrowing as the reason for the warning.

Let’s bring in our regular Monday guest. Julia Coronado is chief economist with the investment bank BNP Paribas. She’s with us live from New York. Good morning.

JULIA CORONADO: Good mroning.

HOBSON: So Italy — where did that come from?

CORONADO: Well, Italy’s finances have not been on a good track for a long time. But we worry less about Italy becoming a basket case the way we’ve worried about Portugal and Greece and Ireland. And part of the reason for that is while Italy’s finances aren’t great, they generally don’t depend on foreign investors to finance their debt. They largely rely on domestic savers to finance their borrowing. So it makes them a little vulnerable. So we worry less about them for sort of a contagion or domino effect kind of perspective.

HOBSON: And you’re comparing Italy to other European countries. What about a comparison with the United States, which has also gotten a warning on its debt from S&P?

CORONADO: Absolutely, and that’s a great comparison. The U.S. has a fiscal situation that certainly rivals Italy’s in terms of them fiscal outlook and its relationship to GDP. We also have a terrible and worrisome outlook and in fact we are dependent on foreign investors to finance our debt. So in some senses that makes us more vulnerable. On the other hand, the U.S. enjoys one — that the dollar is the reserve currency of the world, so everybody needs to hold treasuries. And also we have more institutional credibility, although we certainly seem to be straining that as we go along.

HOBSON: Julia Coronado, chief economist with the investment bank BNP Paribas, thanks so much as always.

CORONADO: My pleasure.

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