Italy Is Biggest Risk to Euro, Says Fitch

Fitch Ratings on Tuesday pointed to Italy as the euro-zone member that poses the greatest threat to the currency bloc's future, as the lack of a regionwide plan to prevent the sovereign-debt crisis from spreading has coupled with the country's large debt burden and high borrowing costs. Those factors are a major reason Italy's credit rating is likely to be downgraded by the end of January, said David Riley, head of global sovereign ratings at Fitch, speaking at a conference in London. "Italy is the front line of this crisis," Mr. Riley said, adding that the country's elevated government-bond yields have "marked a profound intensification of the crisis."

Italy is planning to sell €440 billion ($561.67 billion) in government bonds and Treasury bills in 2012. This is a daunting task given its current borrowing costs, Mr. Riley said. Italy's 10-year government bond was yielding 7.13% on Tuesday, a spread over the German bund of about 5.25 percentage points, according to data provider Tradeweb. Even an Italian government-bond yield of four percentage points over the German bund, coupled with zero real gross domestic product growth, could prove "explosive" for the country, Mr. Riley said, though a spread of 1.5 percentage points and growth of 1.5% would leave Italy solvent.

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