Italy credit rating slashed by Moody`s from Aa2 to A2
Baku, October 5 (AZERTAC). The Italian government`s credit rating has been slashed by Moody`s from Aa2 to A2 with a negative outlook.
The ratings agency blamed a "material increase in long-term funding risks for the euro area", due to lost confidence in eurozone government debts.
Despite Rome`s low current borrowing needs, and low private-sector debt levels in Italy, Moody`s said market sentiment had turned against the euro.
Prime Minister Silvio Berlusconi said the decision was expected.
"The Italian government is working with the maximum commitment to achieve its budget objectives," said Mr Berlusconi.
He said that a plan to balance the government`s budget by 2013 had been approved by the European Commission.
The key issue for Moody`s was the change in the market`s attitude towards eurozone government debts.
The Italian government has for several years earned more in tax revenues than it spends. However, the government also has a large outstanding debt - equivalent to nearly 120% of GDP.
The government relies heavily on the markets` willingness to relend these debts as they come due, and to lend it the cost of meeting its interest payments.
Moody`s said that Italy could be further downgraded to "substantially lower rating levels" if a further deterioration in investor sentiment made it even harder for the country to raise cash from the markets.
Italy`s cost of borrowing rose sharply over the summer on market fears that a slowdown in Italian growth could make existing debts unsustainable.
That prompted the European Central Bank to intervene by buying up Italy`s debts - a controversial policy in Germany. But despite the ECB`s action, Italian borrowing costs have begun to creep up again in recent weeks.
Other news in this section
