Today's Coming Crisis Movie

Sunday, June 19, 2011

Moody's threat to downgrade Italian debt raises eurozone contagion fears

Moody's has threatened to cut Italy's credit ratings on concerns over a possible rise in eurozone interest rates may derail the country's fragile economic recovery, raising more fears of contagion from the Greek debt crisis.

Moody's announcement placing Italy's Aa2 rating on review for downgrade of the next 90 days came after European markets had closed for the weekend.

The agency said structural weaknesses such as a rigid labor market posed a challenge to growth.

Italy's potential downgrade highlights the risks facing indebted European countries as they struggle to avoid a Greece-style crisis.

Markets are worried that Italy, like Greece, will struggle to make the necessary spending cuts and other fiscal measures needed to cut its debts to affordable levels.

"The Moody's news on Italy reinforces the ECB's concern about the prospect of contagion. And contagion should not happen," said Greg Salvaggio, senior vice president at Tempus Consulting in Washington. (read more)