Fitch Upgrades Italy’s Credit Rating for First Time Since 2021

Fitch said the move reflects growing confidence in Italy’s fiscal trajectory, supported by a record of financial discipline, commitments to short- and medium-term deficit targets, a stable political environment, and ongoing structural reforms.

“This upgrade reflects increasing confidence in the direction of Italy’s fiscal policy,” Fitch wrote, noting that a decline in external imbalances and steady reforms have strengthened Italy’s credit profile.

The upgrade comes just a week after Fitch downgraded France, underscoring a shift in perceptions of Europe’s largest borrowers. Unlike France, where political divisions complicate deficit reduction efforts, Italy appears on track to bring its budget shortfall within the EU’s 3% of GDP threshold, possibly as soon as next year.

The development marks a stark contrast with Italy’s past reputation as the eurozone’s “weak link,” often plagued by fragile governments and political turnover.

Italian Finance Minister Giancarlo Giorgetti welcomed the announcement, saying, “We have put Italy back on the right track after a great deal of hard and careful work.”

The upgrade is conditional on Rome’s ability to deliver on its deficit-cutting pledges. The government is preparing its 2026 budget, expected to be finalized later this month.

Investor sentiment toward Italy has already shifted significantly. The spread between Italy’s 10-year bonds and German bunds, a key measure of eurozone credit risk, has narrowed to under 80 basis points, less than one-third of its level when Meloni took office in 2022.

This compression has sharply reduced Italy’s borrowing costs, freeing up billions of euros that can be redirected toward fiscal plans. Still, challenges remain: public debt remains above 130% of GDP, one of the highest ratios in Europe.

Attention now shifts to Moody’s, which currently rates Italy just one notch above junk. Among the five agencies recognized by the European Central Bank for collateral assessments, four already rate Italy two levels higher.

Moody’s is not scheduled to publish its next review until November 21, but other agencies, including S&P Global Ratings, Morningstar DBRS, and Scope Ratings, are expected to issue updates in October.