Moody's downgraded Italy government bond rating

PanARMENIAN.Net - Ratings agency Moody's on Friday, July 13 downgraded Italy's government bond rating by two notches, citing the knock-on effects of a possible Greek exit from the eurozone and Spain's banking woes, AFP reports.

In reducing the rating to Baa2 from A3, Moody's said that Italy was now "more likely to experience a further sharp increase in its funding costs or the loss of market access" for borrowing to service its budget.

The move lowered Italy's rating to two notches above junk-bond status, and came just hours before the eurozone heavyweight attempts to raise 5.25 billion euros in a government bond auction.

"The risk of a Greek exit from the euro has risen, the Spanish banking system will experience greater credit losses than anticipated, and Spain's own funding challenges are greater than previously recognized," Moody's Investors Service said in a statement outlining its rationale for downgrading Italy.

"Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets.

"Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding," it said, reaffirming a negative outlook for Italian debt.

However, Moody's stressed that Italy did have some strengths: a primary budget surplus not counting interest payments on its cumbersome debt, a diverse economy, and the technocratic government's determination to enact reforms.