Moody's Downgrades Italy As Market Investors Flee Europe

Moody’s cut its rating of Italy for the same reason that credit rating agencies have dropped their opinions about the financial viability of other nations in the EU. Italy, along with Portugal, Greece, and perhaps Spain, will have trouble paying their bills.

Moody’s wrote it “downgraded Italy’s government bond ratings to A2 with a negative outlook from Aa2” because

The material increase in long-term funding risks for euro area sovereigns with high levels of public debt, such as Italy, as a result of the sustained and non-cyclical erosion of confidence in the wholesale finance environment for euro sovereigns, due to the current sovereign debt crisis.

The trouble with the global economy was listed as the other primary reason

The increased downside risks to economic growth due to macroeconomic structural weaknesses and a weakening global outlook.

Economists continue to say that countries like Italy cannot cut their way out of trouble through sharp reductions of government expenditures. Many of those expenditures are too important as drivers of GDP growth. But, the ratings agencies don’t accept that fact.

Douglas A. McIntyre