Italy has debt rating cut by S&P

20 September 2011 Last updated at 01:12 GMT Analysts said the downgrade will heighten fears of contagion in the eurozone Italy has had its sovereign debt rating cut by Standard & Poor's, the latest move in a deepening European debt crisis.

S&P cut its rating one level to A/A-1 from A+/A-1+, adding that the outlook for the country was "negative".

It cited fears over Italy's ability to cut state spending and bring its finances in order.

Italy recently passed an unpopular austerity budget.

"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P said in a statement.

Italy follows fellow eurozone countries, Spain, Ireland, Greece, Portugal and Cyprus in having its credit rating downgraded this year.

The surprise move by the ratings agency will fuel fears of contagion in the eurozone.

Italy has Europe's second-largest debt level and the cost of that debt has been soaring in recent weeks as lenders to Italy have become nervous about its ability to repay loans.

The downgrade is likely to raise Italy's borrowing costs further.

"Coming at a time when the world's financial markets are on edge, warily watching for a default by Greece with knock-on unknown effects on the financial system, the optics of this downgrade stink," said Carl Weinberg of High Frequency Economics.

"Perceptions are more important than realities," he added.

"Investors will be shaken, as if they are not shaken enough already, by what appears to be decaying conditions for another sovereign issuer."

Contagion sentiment

The downgrade has shaken already nervous investors.

In Asian trading the euro has fallen sharply against both the yen and the dollar and the wider share markets have also moved into the red.

Marc Lansonneur, of Societe General Private Banking said that the surprise move by S&P is likely to increase volatility in the markets.

"The sentiment of contagion is definitely stronger than before," he said.

"If there is no trust in the system then anything is possible. The less trust you have the more expensive the money is to borrow for European countries and the worse the crisis is. It then starts fuelling itself."

Concern over Greece and whether or not it will default on its loans hit markets hard on Monday.

The Greek government is in ongoing talks with the International Monetary Fund and the European Union about getting more bailout money.

Earlier this month, S&P cut the credit rating of the US from AAA to AA+ for the first time in its history.

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Italy pays much more to sell debt

28 July 2011 Last updated at 14:51 GMT The recent bailout deal for Greece agreed by the eurozone has not calmed all of investors' fears Italy has had to pay much more to borrow than a month ago as investors continue to worry about its huge debts.

Italy had to pay an interest rate of 4.8% to sell 3.5bn euros ($5bn; £3.1bn) of three-year bonds - up 1.1 percentage points from June.

Despite multiple attempts to contain the Greek debt crisis spreading, Italy and Spain have seen their borrowing costs rise in recent weeks.

Italy has the largest sovereign debt of any European country.

The rate on benchmark 10-year bonds, also sold by Italy on Thursday, was 5.77% - up 0.8 percentage points from June.

As a percentage of output, Italy's debt is second only to Greece in the eurozone - whose huge debts have led to two bailouts.

'Difficult environment'

Since the Irish Republic and Portugal have also been bailed out in the past year, investors have begun to fear that Italy might be next.

The inability of the US to agree a deal to pay its debts has also put pressure on financial markets.

"The auction came in a very difficult market environment, with the issue of US debt ceiling still unresolved", and speculation about the future of Italian finance minister Giulio Tremonti, analysts at Unicredit said.

"All this did not help to create a friendly environment for the auction."

Italy passed a 70bn-euro austerity package earlier this month to reassure investors that the country will not succumb to the debt crisis.

Meanwhile, the French finance ministry says that French banks and insurers have promised to give Greece easier lending terms on 15bn euros of bonds they hold.

As part of the latest eurozone bailout deal for Greece, private lenders to the country have been given the option of extending their bonds into new debt with longer maturities and lower interest rates.

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