Credit rating agency Fitch has downgraded Italy and Spain’s government debt. Italy’s was cut to A+ down from AA- and Spain’s rating was cut to AA-.
The downgrade comes after Moody’s rating agency took similar action this week by cutting Italy’s rating.
Explaining the move with regards to Italy, Fitch held the amassing of the eurozone crisis and doubt over the strength of Italian banks as responsible. It stated that the unpredictability of the value of Italian government bonds will intesify concerns over the banking system.
Fitch also blamed the worsening debt crisis for the downgrade of Spanish government debt, along with its fears that Spain will not be able to act fast enough to reduce its debt levels and boost its growth, making it extremely exposed to external problems.
Spain has the highest unemployment rate in the eurozone and forecasts made by Fitch suggest that Spanish economic growth will be modest for the next 3- 4 years.
Both Italy and Spain have imposed strict measures in order to reduce their deficits and rebuild confidence in investors. In addition, the European Central Bank has purchased some of Italy’s debt however, despite these moves, the cost of borrowing for Italy is on the rise.
As the financial crisis worsens, policymakers around the world are in talks over how to finally put an end to it. Plans made to increase the eurozone’s bailout fund now seems insufficient and therefore, additional more drastic measures now need to be taken. French President Nicolas Sarkozy will be meeting Christine Lagarde, head of the IMF later today and German Chancellor Angela Merkel tomorrow to discuss how best to act.
G20 leaders have stated that they hope a decision will be made and announced early this month.
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