Italy is in shock, coming to terms with the news that it is now less credit-worthy than Slovakia.
The ratings agency Standard and Poor’s says the outlook for growth is worsening and the centre-right government of Prime Minister Silvio Berlusconi has not shown it can respond effectively.
That is despite a 60 billion euro austerity plan being pushed through parliament only last week, with the aim of budget balance by 2013.
Berlusconi has dismissed the rating cut as “politically motivated”. But it is already leading to renewed calls for him to resign.
“There is a huge issue with credibility,” said Pier Ferdinando Casini, the leader of the Centre Union. “The ratings agencies and the analysts are clearly taking this into account. The talk is all of lack of credibility and the inefficacy of the austerity plan.”
The head of Italy’s main business union says the business community is tired of being treated as an international joke:
“Either the government adopts serious, strong and unpopular measures which will send a clear message to the market or this government has to resign,” said Emma Marcegaglia.
Italy is the third-largest economy in the euro zone but it is also one of the most sluggish. The one-notch cut has also increased pressure on the already stressed euro