Editor's note: Freddie Reidy is a freelance writer based in London. He studied history and history of art at the University of Kent, Canterbury, specializing in Russian history and international politics. The article reflects the author's opinions and not necessarily the views of CGTN.

The coronavirus continues to inflict pain on Italy. This week further economic pressure arrived with ratings agency Fitch downgrading Italy's credit to just above "junk" status.

This underscores the potential long-lasting economic consequences of the virus but is also a major test of how the EU will respond. Will the bloc be able to agree on an approach in time to protect the Italian economy as well as the eurozone as a whole?

Earlier in the crisis, EU finance ministers of some southern EU nations were at pains to point out the necessity to react more rapidly to the crisis than the zone had in 2008, with the eurogroup president warning of the mistakes of 2008 where "Europe did too little too late."

However, the split between northern European nations – Germany, the Netherlands and Finland – and some of its southern partners – France, Spain and Italy – is hampering the pace and scope of relief.

The northern nations believe that lending should be contingent on economic conditions. They believe that without such conditions, northern nations are at a disadvantage as they had made financial provision within their budgets in the event of a financial crisis.

This divide, last week, once again prevented an agreement on a one-trillion-euro aid package. The meeting of EU heads of state had already been postponed two weeks earlier, where, consensus had also eluded EU leaders.

As previously reported, access to the European Stability Mechanism was also slow in coming, leading to billions of euros wiped off the markets.

A lack on agreement between EU leaders has also increased pressure on the European Central Bank to further shore up the eurozone. Bank President Christine Lagarde had promised "whatever it takes." ECB minutes later showed that even on the bank's board, there were dissenters to this sentiment, highlighting the scale of division on the issue.

However, a 750-billion-euro fund Pandemic Emergency Purchase Program (PEPP) has been launched. The program has begun to oversee the purchase of so called "fallen angel" bonds. These bonds are those which have lost their investment grade and therefore are seen as riskier assets.

This is in addition to the ECB's quantitative easing program which has already purchased just under four trillion euros worth of assets.

The ECB meet on April 30 to discuss further investment in the PEPP and other measures. At the rate of current PEPP spending, the fund is set to require additional capital by the end of August, likely to be equivalent to half of the initial program investment.

The aforementioned cut in Italy's credit rating by Fitch will be disappointing for the ECB and EU Commission as S&P had decided against making the same move last week after the ECB were viewed to be "backstopping additional (Italian) borrowing" and thereby building market confidence.

Fitch's decision to downgrade will likely erode this belief and necessitate further political and fiscal overtures of solidarity by the EU Commission and ECB to provide market confidence. Fiscal support from the ECB would presently appear to be a necessity. Political confidence and solidarity from the 27 member states would appear a much harder commodity to guarantee.

The ECBs readiness to buy "fallen angels"' is good news for the junk (high-yield) markets. At the outbreak, the flow of capital to these downgraded groups all but ceased in conjunction with a diminishing demand and subsequently, revenue. This was also true in the U.S. and similar moves there have helped recoup losses.

There can be no doubt that the political impasse between European leaders has forced the ECB to operate, in some critics' eyes, "beyond its remit." The core purpose of the ECB is to control inflation. Policies such as the purchasing of "fallen angels" through aggressive buying programs should ease market concern but ultimately, it is a taxpayer funded bailout of debt-laden entities, many of which are owned by private equity.

Lagarde is a highly skilled political operator who, as a former French finance minister is also a veteran of the 2008 crash. Lagarde will no doubt be working, as ECB president, to prevent a deepening of the schism between northern and southern EU states which presently threatens the pace of an EU-wide recovery. Italy is set to be a huge test of the fiscal and political unity which underpins the raison d'être of the European Union.

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