Could Italy be the Next Greece?

After threatening last week to lower its ratings on Italian (NYSE:EWI) sovereign debt, credit ratings agency Moody’s (NYSE:MCO) came out yesterday and caused another scare among Italian banks, revising its outlook on 13 private banks in the country and warning that it would place 16 more on review for possible downgrade if budget concerns were not met by Italian leadership.

The threats sent the Italian financial markets into such a whirl that MarketWatch repots trading in Italian bank stocks was halted today. “A spokeswoman for Borsa Italiana said the suspension was temporary and was triggered by ‘technical problems about volatility.'” Other European banking stocks are also slipping this morning, as reports indicate that the some Italian financials may have failed stress tests.

Italy has a national debt burden that totals 120% of GDP, a mark close to that of Greece. From Reuters, “Italy’s (NYSE:EWI) conservative banking system, high levels of private savings and a tight clamp on public spending have largely shielded it from the euro zone debt crisis, but its chronically sluggish growth has made it impossible to cut the debt. In its report, Moody’s (NYSE:MCO) said Italy’s economy has long-term structural weaknesses such as low productivity as well as “labor and product market rigidities” that have impeded growth over the last 10 years.” The threat from an Italian debt failure would be far more serious than the current Greek situation.

Watch for these European banking giants to take hits: (NYSE:DB), (NYSE:CS), (NYSE:UBS), (NYSE:BCS), (NYSE:STD), (NYSE:BBVA).

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