Italy has become the latest major economy to have a credit worthiness downgrade, in a move that has taken markets by surprise and added to the pressure on the euro zone.
Standard & Poor’s rating services cut the country’s sovereign debt down a notch to A, and kept its outlook on negative. It had already put Italy on review for a downgrade in May. It had been thought that Moody’s would downgrade Italy first. Moody’s said last week it would take another month to decide.
The Italian parliament recently passed an austerity budget worth more than 50 billion euros, with the government pledging to balance the budget by 2013.
Prime Minister Silvio Berlusconi has attacked Standard & Poor’s move as being “influenced by political considerations” and says Italy will shortly approve measures to spur growth.
But the agency says the outlook for growth is worsening, making the revised targets difficult to achieve. It sees little sign that Italy’s fractious coalition government is responding effectively.
The downgrade underlines the mounting seriousness of the euro zone crisis. The news sent the euro more than half a cent lower against the dollar.
Italy is the biggest country in the single currency region so far to be hit by a downgrade.