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Chronicle of a foretold cut: Fitch downgrades Italy and Spain’s credit rating

Saturday, October 8th 2011 - 08:20 UTC
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Scandals have left Berlusconi virtually KO politically and Rodriguez Zapatero is on his way out  Scandals have left Berlusconi virtually KO politically and Rodriguez Zapatero is on his way out

Fitch cut on Friday Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening of the Euro zone debt crisis and a risk of fiscal slippage in both countries. Fitch cut Italy's rating to A+ from AA- and lowered Spain to AA- from AA+.

It kept both countries, respectively the third and fourth largest in the Euro zone, on a negative outlook suggesting further downgrades could come in future.

Italy and Spain are embroiled in the region's debt crisis and are reliant on the European Central Bank to buy their government bonds to prevent yields rising to unsustainable levels.

”A credible and comprehensive solution to the (Euro zone) crisis is politically and technically complex and will take time to put in place,“ the ratings agency said in separate statements explaining its downgrade of both countries.

Fitch's rating for Italy is now at the same level as Malta's and Slovakia's.

Fitch, the third ratings agency to downgrade Italy in recent weeks following similar moves by Standard & Poor's and Moody's, said market confidence in Italy had been eroded by the government's initially hesitant response to the rise in yields.

Silvio Berlusconi's scandal hit government plans to present a package of measures to help growth later this month but the ruling coalition is so divided and weak that few analysts have any confidence in its ability to adopt the kind of deep reforms required.

Spain's Socialist government has slashed its budget deficit with a series of austerity reforms, although much of the country's debt lies in its autonomous regions which are still implementing cuts.

”We respect the decision but we don't agree with it,“ said a spokesman at Spain's economy ministry.

Spain is holding elections next month and the Conservatives with Mariano Rajoy are expected to sweep in with and ample majority in Congress.

Italian Foreign Minister Franco Frattini was more dismissive, saying the move was fully expected and adding that ”markets don't care much about the role of Fitch, Moody's and company”.
 

Categories: Economy, Politics, International.

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