The move by international ratings agency Moody’s to cut Italy’s credit rating for the first time in two decades will do little to ease concerns about the Eurozone’s debt crisis, despite global markets climbing on news EU finance ministers met to discuss emergency bailout measures for the region’s banks.
But will it prompt appropriate, targeted action by Prime Minister Silvio Berlusconi and his government? Recent experience suggests that it will not.
Moody’s decision to downgrade Italy’s rating by three notches to “A2” comes two weeks after Standard & Poor’s cut its own rating for the country.
S&P also lowered its growth projection for Italy to an 0.7% annual average for 2011 to 2014, from a prior projection of 1.3%.
It also hinted at another downgrade within 18 months if the government is unsuccessful in paying down its overall debt to below its current level of 120% of gross domestic product (GDP).
The slowing economy will make it harder for Italy to achieve its fiscal targets – a situation made worse by the fact that Italy has the second highest public debt to GDP level in the EU after Greece.
These credit downgrades will make investors wary of buying Italian bonds, and so the country will forced to increase the level of interest it repays. This means cost of raising capital will become more expensive, so Italy, like Greece, could take decades to climb out of debt.
People living in Italy know there is reason to be concerned. But possibly more concern is being expressed by Italian banks, foreign onlookers and external financial markets.