Moody’s Cuts Italy’s Credit Rating

Moody’s cut Italy’s credit rating by three notches late Tuesday, and assigned it a “negative outlook.”

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Italy’s new rating — A2 — is still comparatively high, and Moody’s did note that “the risk of default by Italy remains remote.” But Moody’s also expressed concern that Italy may have to pay more to borrow when it has to refinance more than 200 billion euros in debt next year.

Noting the “fragile market sentiment” in the euro zone, with weak market conditions likely to persist, Moody’s foresees “materially increased financing costs and funding risks.”

Moody’s also noted Italy’s “structural economic weaknesses”, particularly low productivity, which has been an “impediment” to their economic recovery.

Finally, Moody’s expressed concern that Italy might not be able to meet its debt-reduction targets. “Since more than half of the consolidation measures are based on government revenue growth, the plans are vulnerable to the high level of uncertainty around economic growth in Italy and elsewhere in the EU,” the agency said.

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Moody’s expects Italy’s debt-to-GDP ratio, which was 104% at the beginning of the financial crisis, to reach 120% by the end of this year.