Italy’s Credit Rating Gets Downgraded
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October 5, 2011 TheFreshOutlook  |
More concern for eurozone governments as Moody’s downgrade Italy’s credit rating by three notches. It was expected, says Silvio Berlusconi.
Moody’s Corporation has slashed Italy’s credit rating from Aa2 to A2. The agency announced the three-notch reduction on Tuesday night and raised further concerns over the country’s growth outlook.
The decision, which came after the US stopped trading, serves a warning to other eurozone governments whose borrowing costs have also risen in the past year.
Moody’s has blamed the downgrade on “the fragile market sentiment” and a loss of confidence in eurozone government debts.
It said: “Although future policy actions within the euro area could reduce investors’ concerns and stabilise funding markets, the opposite is also increasingly popular.”
Italian Prime Minister Silvio Berlusconi maintained he was expecting the downgrade and said that the government was “working with maximum commitment to achieve its budget objective”.
He also added that a plan to balance the government’s budget by 2013 had been approved by the European Commission.
According to reports, Rome’s current borrowing needs remain low, as does its private sector debt levels; nonetheless, Moody’s downgrade has cast a shadow over the country’s growth outlook.
Speaking to The Fresh Outlook, Professor Patrick Minford from the Cardiff Business School explained that Italy’s GDP ratio and problems arising in the banks had a huge impact on Moody’s decision.
“The worry is that their banks may be in trouble because of Greek and Portuguese debts,” said Professor Minford.
He added that Italy’s “debt to the GDP ratio” stands at “well over 100%”.
When asked what the Italian government can do to combat the downgrade, Profesor Minford said it was all down to risk.
“The thing is, it’s all about risk,” he said, “and nobody knows what’s going to happen in the world. It’s more a problem of the unknown. Obviously Italy can do a bit about the deficit it’s got and reduce it…but what it can’t very easily do is control how badly the Italy banks are hit by Greek default.”
Analysts believe that a downgrade of the banks’ credit rating will soon follow today’s announcement.
Elsewhere, Greece has experienced another 24-hour general strike, in which 16,000 people protested in central Athens.
The strikers are protesting recent austerity cuts that promise to reduce the Greek deficit by 8.5%. The measures, which include an emergency property tax and the suspension of the 30,000 public sector workers, have been hugely criticised throughout the country and brought thousands to the picket line on Tuesday.
Speaking to Reuters, a spokesman for Greece’s main union, GSEE, said: “With this strike, the government, the EU and the IMF will be forced to reconsider these disastrous policies.”
By Catherine Rees
[Image courtesy of Images_of_Money]
