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Italian Default Risk Less Than Market Thinks: Credit Suisse

The chances of Italy defaulting on its debt repayments are actually smaller than the market is pricing in, according to analysts at Credit Suisse.

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After the Mediterranean country was downgraded by ratings agency Standard & Poor's last week, fears about its future have continued to weigh on Italy's stock market and government bonds.

However, its relatively low level of household debt and foreign liabilities may help save it from defaulting, analysts at Credit Suisse wrote in a research note.

"Net foreign liabilities are just 21 percent of GDP (this compares to a peripheral European norm of close to 100percent of GDP)," they said. "This is absolutely critical because it means that into a worse-case scenario, namely a disorderly break up of the Euro, Italy would not need to default."

"The default risk being priced into the CDS market is too high," they continued.

One leading Italian business figure told CNBC Wednesday that he was still hopeful that Italy's problems could be solved, if structural reforms are enacted.

"Italy is still a rich country but we have a huge debt on which we have to pay interest.We have to pay a lower, reasonable, normal interest rate," said Gian Maria Gros-Pietro, chair, Department of Economics and Business, Luiss Guido Carli University and former chairman of ENI, the Italian oil company."To change that we have to have growth in the economic system and change the way the economy works structurally."

The concept of a euro bond to help solve the euro zone's debt problems has so far been rejected by the region's largest economy, Germany.

"I can understand that Northern European taxpayers don't want to put their money together in a basket with Italy and Southern Europe's debt," said Gros-Pietro."Something different should be made."

He believes that a euro bond backed by members' gold reserves, which has been proposed by former European Commission President Romano Prodi, could help solve the problem.

There have also been doubts cast on whether the austerity bill being debated in the Italian parliament will solve the country's problems.

"In Italy, especially in the business community, the opinion is that, in the long run, the government has presented the country with more taxes and insufficient measures for growth. There are still obstacles for growth," said Gros-Pietro. "There isn't enough liberalization, privatization, or change in the labor market, which are needed to enhance growth in Italy."

Credit Suisse analysts agree that Italy's "primary" problem is its low growth, with average GDP per capita growth of just 0.2 percent on average each year since 2000.