There has been a further blow to the eurozone as the credit rating agency; Standard & Poor’s has downgraded Italy’s debt rating to A from A+ on the basis that it has doubts over whether Italy can sufficiently cut it’s spending and reduce it’s deficit.
The agency has stated that projections of growth for Italy are poor and the overall outlook for the Italian economy is discouraging. In addition, with regards to the recent and severe budget Italy has constructed, Standard and Poor’s believe that it is still not enough, despite the unpopular measures imposed. It has argued that the targets are too optimistic considering the decline in economic activity Italy has experienced recently and believes that ultimately they are unattainable. Furthermore, it has interpreted Italy’s approach towards dealing with recent market pressures as cautious and therefore suggestive that the country is uncertain itself about what the future holds for it.
In response to these claims and the rating cut, Italy has expressed its opinion that the decision was based on political concerns and the agency has been too heavily influenced by reports and speculations from the media and not the economic facts.
The cut in Italy’s credit rating is the latest in a long list of eurozone economies that have suffered the same blow. Spain, Greece, the Republic of Ireland, Cyprus and Portugal have all previously had their rating cut this year, and the downgrade of Italy’s rating will do little to ease concerns over the condition of the eurozone, especially since Italy holds the second highest level of debt in Europe and lenders are fretting over Italy’s capability to make its repayments.
The effects of this most recent rating cut could already be seen in the European stock markets this morning as Germany’s Dax and the FTSE 100 fell 0.3% whilst Frances Cac 40 and Italy’s MIB indexes slipped 0.8%.
Further the cost of borrowing for Spain and Italy increased with Italy’s bond yield rising to 5.7% up from 5.57% earlier this morning.
On a more positive note, the value of the euro against the dollar has risen to $1.3658 and has remained unchanged against the pound.
Carl Weinberg of High Frequency Economics has spoken out about the move by Standard and Poor’s claiming that it will have disastrous effects on investors’ confidence which is already precarious. He stated that the opinions of the investors are more influential than actual facts.
Similarly, Marc Lansonneur of European bank Societe Generale has said that the move by Standard and Poor’s will amplify the instability of the markets.
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