Moody's downgrades Italy credit rating on debt, deficit concerns

Italian Interior Minister Matteo Salvini launched a tirage against the EU during his visit to MoscowMore

Italian Interior Minister Matteo Salvini launched a tirage against the EU during his visit to MoscowMore

They cited Italy's fiscal deterioration and the government's decision to target higher budget deficits in the coming years.

"The fact that the EU Commission is clear in its rejection of Italy's draft budget is an important message from the EU to Italy", said Guntram Wolff, Director of Brussels-based Bruegel think-tank, describing the letter as a "significant political rift" with the rest of the euro area.

Italian Economics Minister Giovanni Tria emphasized that the government's draft budget, sent to Brussels on Monday, was aimed at increasing growth.

On Friday, Moody's cut Italy's credit rating by a notch from "Baa2" to "Baa3".

Late Friday, global credit rating agency Moody's downgraded Italy's ratings to Baa3, with a stable outlook, citing the "material weakening in Italy's fiscal strength".

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Prime Minister Sebastian Kurz of Austria, which holds the rotating EU presidency, said Friday that Italy reduce its spending plans because "we as the European Union are not prepared to take on this risk, these debts for Italy".

"We [the commission] were very kind, gentle, and positive, when it came to Italy, because Italy is Italy", Juncker said, adding that in the last three years Rome was able to €30bn more without sanctions by the EU's stability rules.

It includes a series of pension and tax changes that will cost 37 billion euros ($43 billion), of which 22 billion will be paid for by expanding the deficit.

However, the Italian government said its fiscal policies would boost economic growth in the country, while the nation's debt-to-GDP ratio would remain at 130 percent.

"Even in the near term, Moody's believes that the fiscal stimulus will provide a more limited boost to growth than the government assumes".

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The Italian government's brash attitude towards public spending has spooked financial markets, with many fearing a re-run of the debt crisis that almost saw Greece kicked out of the eurozone.

Several economists on both sides of the English channel say a combination of Italy's rising public debt and a possible no-deal Brexit could significantly damage the Eurozone economy, possibly developing into another European debt crisis.

Italy's prime minister on Thursday denied any division between the two parties in his governing coalition, after reports of a spat over tax revenues, and insisted Rome will move ahead with planned expansionary budgetary measures.

Previously, European countries who clashed with Brussels over their deficits have done so without censure.

"Given how damaging Brexit is to the European Union project, a loss of Italy would be devastating and to be avoided at all costs - hence I think (that) Italy's hand is quite strong".

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Similarly, Spain and Portugal avoided fines in 2016 despite public deficits well beyond the limits.

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