Italian Debt Downgraded Due to Contagion Fears From Spain and Greece

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.

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

– https://econintersect.com/

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

– http://www.latimes.com/

New Project to Save Greece: ‘For a Donation of 3,000 Euros, Every Greek Can Buy Freedom’

– http://www.spiegel.de/

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.

Quantitative easing: QE, or not QE?

– http://www.economist.com/

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 show

– http://www.latimes.com/

The 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…

IMF says Greece ‘missed’ some bailout targets

– http://news.yahoo.com

The 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.

A Very Heavy Legacy: Strong Head Winds for Air Berlin

– http://www.spiegel.de/

Thanks 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 auction

– http://news.yahoo.com

Italy 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.

Interest rates: The fog of LIBOR

– http://www.economist.com/

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…

Moody’s downgrades Italian government debt

– http://news.yahoo.com

Ratings 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.

‘No Measurable Effect’: ECB Interest Rate Cut Inspires Little Hope

– http://www.spiegel.de/

The 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.

Steven Hansen