Another trip by Moody's to Italy. And with the usual timing. Less than 24 hours from the last Btp auction for this summer, the US agency has cut the rating on our government bonds by two notches, from A3 to Baa2. Junk level. But that's not all: Moody's also confirms the negative outlook, due to the risk of contagion from Spain and Greece.
According to the agency, Italy risks "experiencing a further sharp increase in its financing costs or the loss of market access, due to a increasingly fragile market confidence and a risk of contagion from Greece and Spain”. In the press release, Moody's stresses that the "risk of a Greek exit from the euro has worsened, while the Spanish banking system will suffer greater losses than those foreseen and Spain's challenges to finance itself are greater than hitherto admitted".
The agency therefore highlights for Italy a "worsening short-term economic prospects, due to weak growth and high unemployment, which fuel the risk of a failure in the fiscal consolidation effort”. Such a failure could then make it impossible for the country to "finance itself on the financial markets".
However, Moody's recognizes how the reforms launched by the Monti government have the "potential" to improve long-term growth prospects and budget prospects. However, there are also "concrete" risks that weigh on the application of these reforms, thus motivating the confirmation of the negative outlook.
