Italy faces credit rating cut as labour reform worries mount

Tim Wallace
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FITCH is likely to slash Italy’s credit rating at the end of January, the agency’s head of sovereign ratings warned yesterday, which could make it even harder for the country’s government to resolve its debt crisis.

Several of the five other Eurozone countries currently being reviewed are “likely to come down one or two notches” as well, group managing director David Riley said.

Even if Italy does get a handle on its finances this year, it will be much harder to implement the reforms required to “convince investors of Italy’s growth potential,” he told an audience at Fitch’s European credit outlook event.

That means there is a “significant” chance of Italy losing its A+ rating.

If it fails to regain investors’ trust, Italy’s debt to GDP ratio could follow an “explosive” path over the next decade as bond yields stay high.

Spain, Belgium, Ireland, Slovenia and Cyprus are also being reviewed, and Riley said that at least one can also expect a downgrade.

Irish education minister Ruairi Quinn said the government will be ready to re-enter bond markets as planned at the end of next year and will not need another bailout.

However Portugal’s central bank yesterday predicted “stagnation” in 2013 after a deep recession this year.