Italian Debt Downgraded Due to Contagion Fears From Spain and Greece

July 14th, 2012
in econ_news, syndication

Econintersect: Moody's downgraded Italian government bond rating from A3 to Baa2 with negative outlook. Moody's posted on their website the reasons for the downgrade:

1. Italy is more likely to experience a further sharp increase in its funding costs or the loss of market access than at the time of our rating action five months ago due to increasingly fragile market confidence, contagion risk emanating from Greece and Spain and signs of an eroding non-domestic investor base. The risk of a Greek exit from the euro has risen, the Spanish banking system will experience greater credit losses than anticipated, and Spain's own funding challenges are greater than previously recognized.

Follow up:

2. Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets. Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.


Reference Posts:

Rating Action: Moody's downgrades Italy's government bond rating to Baa2 from A3, maintains negative outlook

Read all the reasons for the downgrade including potential future actions which can be of further effect.

Other Eurocrisis Headlines:

Eurozone: Heading Toward 22 Million Unemployed


A just published ILO report warns that unless Eurozone changes its policies unemployment in Eurozone could reach 22 million. According to the unemploymentSMALLnews release:

"Jobs losses have been especially acute in Southern Europe, but even Austria, Belgium, Germany, Luxembourg and Malta -- the only countries where employment has risen since 2008 -- are seeing signs that the labour market situation may no longer be improving."

The corresponding number in the U.S. would be about 20.7 million unemployed, based on total population ratios.  This would produce a U-3 unemployemnt rate about 13.4% and a U-6 underemployment rate above 20% (assuming the number for part-time for economic reasons would be unchanged).

Fund manager sees investment opportunities in Europe


David Nadel, a portfolio manager at Royce Funds, says the firm targets strong, global-minded companies in Europe, particularly ones growing in emerging markets.European economies have been battered by seemingly never-ending crises: first Greece's overwhelming debt, then trouble in Ireland, Portugal, Spain, Italy and beyond...

New Project to Save Greece: 'For a Donation of 3,000 Euros, Every Greek Can Buy Freedom'Greek shipping heir Peter Nomikos has taken matters into his own hands. While EU leaders wrangle for a solution to Greece's problems, Nomikos started a non-profit to wipe out the country's debt. If all of his countrymen do their part, he tells SPIEGEL ONLINE, they will be able to shore up the country's finances.

Spanish banks' borrowing from the ECB rose at the fastest pace in three months, amid increased stress on lenders. Data show banks in the north are not lending to their peers in the south.
Greece's crisis has been brutal to the country's younger generations. Now, as Greece's leaders seek to renegotiate the bailout, those on whom the country's future hangs must decide to fight or flee.
Growing risk aversion is pushing equities lower for a seventh successive session while also driving demand for safe havens such as UK, US and German government debt. The flight to safety largely reflects growing unease about the economic outlook.
Quantitative easing: QE, or not QE? THE conventional arms have run out. Central banks in America and Britain have long since pushed interest rates to close to zero. On July 5th the European Central Bank (ECB) joined them, slashing its rate on deposits to 0% and its main policy rate below 1%. A different sort of arsenal is now being deployed...

Boeing, Airbus get $52 billion in orders at Europe air showThe plane makers land fewer big orders at the Farnborough air show than at last year's Paris show. And unlike last year, Boeing bests Airbus.As one of aviation's foremost showcases comes to a close, the world's largest plane makers have secured fewer lucrative orders than last year because of ongoing concerns about the global economy...

The U.S. dollar rose to a 2-year high against the euro this week as investors' expectations for a further monetary easing policy eased, following the Federal Reserve's disappointing minutes of the June meeting.
IMF says Greece 'missed' some bailout targetsThe International Monetary Fund said Thursday that Greece has failed to meet a number of targets in the IMF bailout program, insisting it is too soon to discuss revisions to the plan.

While recent PMI data have shown the Eurozone economy to have contracted over the first half of 2012, a different trend has been evident in Ireland, where stabilisation and even some growth has been seen. Companies in Ireland have worked hard to improve their competitive position and this has borne fruit, particularly in export markets.
A Very Heavy Legacy: Strong Head Winds for Air BerlinThanks to a contract negotiated by its founder, the ailing German airline Air Berlin is being forced to lease expensive aircraft from tourism giant and shareholder TUI. The company supplies its own pilots and flight crew, and employees at Germany's second-largest airline are upset to see them earning as much as one-third more.
Italy borrowing costs fall sharply in bond auctionItaly raised 7.5 billion euros ($9.2 billion) euros in one-year bonds on Thursday at a sharply lower rate than in the last similar sale, the Bank of Italy said, indicating improved investor confidence.

European manufacturers of drugs used in lethal injections are refusing to sell them to the U.S.
Interest rates: The fog of LIBOR THE furore over alleged manipulation of the London Interbank Offered Rate (LIBOR) and its European cousin, the Euro Interbank Offered Rate (EURIBOR), continues to rage. In Britain, the deputy governor of the Bank of England and the chairman of Barclays were hauled over the coals this week by a parliamentary committee...

The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany's economy, once seemingly immune to the crisis, is now facing mounting difficulties. By SPIEGEL Staff
Moody's downgrades Italian government debtRatings agency Moody's on Friday downgraded Italy's government bond rating by two notches, citing the knock-on effects of a possible Greek exit from the eurozone and Spain's banking woes.

IN THE wee hours of a recent morning a young man with a rucksack was sauntering along the railway line near Grossbeeren. When stopped by two policemen he told them he had missed his train. Being of a suspicious nature, they asked him to open his rucksack. And, behold, they found clippers, gloves, a torch and 24kg (53lbs) of copper cable...
'No Measurable Effect': ECB Interest Rate Cut Inspires Little HopeThe European Central Bank's interest rate is now lower than ever before. But, even with the cut, few believe it will do much to energize the euro-zone's flagging economy. The real problems are to be found elsewhere -- and they aren't getting better.

Unemployment rates in many countries are expected to be higher next year than they were last year, according to the Organization for Economic Cooperation and Development.
Equities have snapped out of a seven-day slump following news that economic growth in China slowed rather than collapsed in the second quarter. A well–received bond auction in Rome is also helping to shore-up sentiment about the Eurozone, helping the euro recover from Thursday’s two-year lows.
Inflation set to fall further in the US and UK. Bank of England MPC minutes and Bernanke testimony to be scoured for need for more aggressive stimulus. UK retail sales, unemployment and government borrowing data likely to disappoint.
Global equities are continuing to struggle, looking set to fall for a sixth consecutive session on concerns about global economic growth and the Eurozone. However, bond yields are falling in the Eurozone periphery on new austerity plans in Spain.


Steven Hansen

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