Moody's cuts Italy's rating outlook on reform concerns
Italy passed a tough market test on Friday as its three-year borrowing costs fell well below 5% at an auction hours after Moody's cut the country's rating to two notches above junk status.business Updated: Jul 14, 2012 00:10 IST
Italy passed a tough market test on Friday as its three-year borrowing costs fell well below 5% at an auction hours after Moody's cut the country's rating to two notches above junk status.
The US rating agency surprised markets on Friday by lowering Italy's sovereign debt rating to Baa2 amid persistent worries about Spain's ability to sort out its banking problems, concerns about a Greek exit from the euro and doubts over Italy's long-term resolve to push through much-needed reforms.
Moody's lauded Prime Minister Mario Monti's commitment to fiscal reforms and structural consolidation. But warned it could again cut the country's marks if the next Italian government failed to push through necessary changes."The negative outlook reflects our view that risks to implementing these reforms remain substantial. Adding to them is the deteriorating macroeconomic environment, which increases austerity and reform fatigue among the population," it said. "The political climate is also a source of implementation risk."
The warning from Moody's knocked the euro down about a quarter of a cent overnight.
The downgrade prompted angry reactions in Italian political and economic circles, with Italian industry minister Corrado Passera calling it "altogether unjustified and misleading."
"This is just Moody's opinion. I think our country, and our manufacturing system, is much stronger than the Moody's evaluation suggests," Italian business association head Giorgio Squinzi said.