Once again Italy’s sovereign debt has been cut by the ratings agency, Moody’s which has them sliding from Aa2 to a rating of A2 and all is not looking good from there. The pattern suggests that further cuts may be in the works and that what it costs Italy to borrow from this point on may put even further stress on the already fragile eurozone.
Financial ministers throughout the eurozone are already struggling with a debt crisis that has spread across the European continent and this latest down grade in as many weeks has placed even greater pressure on them to work an end to the debt crisis that is even threatening beyond the continent.
The reason for the downgrade as listed by Moody’s are actually threefold. Of course the debt crisis is top on the list but second to that is what they are calling a sustained erosion of consumer confidence and third would be the risks for long term funding which Italy faces. These increased risks are the result of internal structural weakness and a weakness in the global outlook.
The Italian government tried to give less credence to this latest downgrade by saying it had been expected. In a report released by Berlusconi, it was even said that Moody’s choice to downgrade Italy yet again had been fully expected and came as no surprise. He even stated that the Italian government had been aiming towards a maximum commitment to achieving the goals it had set out for its budget.
In the meantime, as one more country falls to a downgrade by the ratings agencies, there is renewed concern over the fragile future of the eurozone. More pressure is being placed on the Central European Bank and it appears as though major efforts are underway to prevent another crunch that was seen in 2007. Is this to be a double dip recession? European banks are being asked to prop their economies not to avoid a recurrence before the debt crisis gets any worse.
