Egan-Jones Downgrades Italy to CCC+

In a move that really surprised no one, Italy received another downgrade from ratings agency Egan-Jones, moving the country's credit further into junk territory. Italy's debt, previously rated at B+, is now rated CCC+ by the company. Egan-Jones commented that it sees Italy with a 22 percent chance of defaulting within the next year. With 183 billion euros rolling over in 2012, and another 214 billion euros rolling over in 2013, Italy's ten-year bond rate of 6.5 percent is also likely to rise.

Some traders may wonder why the Italian markets have moved so little on the news. The reasons are two-fold: Italy's precarious position is already known and hence priced in, and Egan-Jones just doesn't carry the same weight as the major rating agencies. Indeed, Egan-Jones has its own problems, with the SEC claiming that the company misrepresented itself when applying to become a nationally-recognized ratings agency. It probably doesn't help that most countries and businesses are not fans of Egan-Jones, as the company routinely delivers harsh and negative ratings. Others would say that Egan-Jones is the only ratings agency not beholden to the entities it rates. Notably, Egan-Jones rarely makes a move that isn't eventually followed by others, and this case is no different. Most watchers expect Moody's to downgrade Italy as well in two to three months.

Italy may indeed be in trouble – but it also has been overshadowed by its fellow European miscreant, Spain. In fact, Italy's problems are far less severe than other European nations. Its debt is too high, but Italy's budget is actually near balance. New debt hasn't been piling on top of the old at an unsustainable clip. The only problem Italy faces is getting investors - or the European Central Bank - to help finance old debt. There's the issue of an Italian recession as well, but that sort of statement can be made about nearly every European country. Spain, on the other hand, has a greater debt burden, a worsening deficit problem, and an economy in ruin. Spanish workforce unemployment numbers sit at 25 percent, whereas Italy's is 10 percent. Looking only at young workers, Spain's number skyrockets to 50 percent. Even for a country that routinely carries high unemployment, that rate is unsustainable. Little wonder, then, that the markets aren't paying much attention to Italy even during a downgrade. Italy has plenty of problems - but for now, there are bigger fish to fry.