Moody`s warns of cutting of credit rating of other EU countries
Baku, October 6 (AZERTAC). Moody`s Investors Service cut Italy`s bond ratings by three notches on Tuesday, saying it saw a "material increase" in funding risks for euro zone countries with high levels of debt.
Moody`s downgraded Italy`s ratings to A2 from Aa2, a lower rating than that of Estonia, and kept a negative outlook on the rating, a sign that further downgrades are possible within the next few years.
The move comes after Standard and Poor`s cut its rating on Italy to A/A-1 from A+/A-1+ on September 19 and underlines growing investor uncertainty about the euro zone`s third largest economy, which is now firmly at the center of the debt crisis.
"The negative outlook reflects ongoing economic and financial risks in Italy and in the euro area," Moody`s said in a statement.
Italy`s mix of chronically low growth, a huge public debt amounting to 120 percent of gross domestic product and a struggling government coalition has caused mounting alarm in financial markets.
The Moody`s decision came as little surprise after the agency said on September 17 that it would finish a review for possible downgrade of its rating on Italy within a month.
Moody`s said the likelihood of a default by Italy was "remote," but the overall shift in sentiment on the euro area funding market implied a greater vulnerability to a loss of market access at affordable interest rates.
Italy`s borrowing costs have soared over the past three months and have only been kept under control by the European Central Bank`s purchase of its government bonds on secondary markets.
An auction of long-term bonds last month saw yields on 10 year BTPs rise to 5.86 percent, their highest level since the introduction of the euro more than a decade ago. It is now expecting the economy to expand by just 0.6 percent next year, down from a previous projection of 1.3 percent. The government last month pushed through a 60 billion euro austerity package -- bringing forward by one year to 2013 a goal to balance its budget -- in return for support for its battered government bonds from the ECB.
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