Italy's economy dealt another tough blow

Now Reading:

Italy's economy dealt another tough blow

Text size Aa Aa

Italy’s economic outlook is moving from bad to worse according to ratings agency, Moody’s.

It has downgraded 13 Italian banks, three days after cutting the government’s bond rating.

Two of Italy’s largest banks – including Intesa SanPaolo and Unicredit – were downgraded to Baa2 from A3 with a negative outlook, matching the country’s sovereign rating. That was lowered on Friday to two notches above junk status.

State lenders Cassa Depositi e Prestiti and Ismea, were also downgraded because of high levels of exposure to the domestic market.

Economist Nicola Barri said Rome desperately needs some breathing space from other European governments: “This is a big problem for our economy because banks are very fragile and some of them may need help from the government. On top of that, fragile banks means that the cost of funding for firms and householders who want to borrow money is still very high.”

The agency said Italy’s long-term resolve to push through much-needed reforms and persistent worries about Spain and Greece were increasing its liquidity risks.

Some Italians believe the banks themselves are to blame for their misfortune. One Rome shopper said: “They weren’t able to keep their records in order and now all of us have to intervene. Governments have to step in to save them while they are threatening and blackmailing us because they have our money.”

Italian banks have come under pressure in recent weeks because of a spreading debt crisis and are seen as vulnerable because of their vast holdings in Italian government bonds.