Monday, June 20, 2011

The Elephant In The Room is Greece; Moody Threatens New Downgrade

While all the talk today is on Greece, including withholding of a bailout tranche, non-confidence vote on the PM disagreements between Germany and the rest of the Europeans, well, it's a lot. But the real elephant in the rook is Italy. And the news there is not good.

Moody’s Investors Service says its credit ratings may be reduced because of "economic growth challenges, risks associated with efforts to reduce debt and the potential for higher borrowing costs". Local and foreign-currency government bond ratings were placed under review for a possible downgrade.

The agency added that Italy may have trouble reducing its public debt to more affordable levels as borrowing costs rise and support for the government of Prime Minister Silvio Berlusconi weakens.

“The Italian economy faces growth challenges in an environment characterized by long-term structural impediments to growth,” “The fragile market sentiment that continues to surround European sovereigns with high levels of debt poses additional risks for Italy.”

Italy's debt was about 1.8 trillion euros ($2.6 trillion) at the end of last year, with a ratio of debt to gross domestic product of about 119%. The IMF projecta Italy’s economy would expand 1% this year, down from 1.3% in 2010.

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