As the Eurozone sovereign debt crisis worsens (joined by the U.S.A. and U.K.), the ratings agencies are at it again, with their lagging indicator of choice; the credit worthiness downgrade. This time, Italy got hammered. Moody’s cut the Italian credit rating by three levels, from A2 to Aa2. That is a lower rating than Moody’s rates the credit worthiness of the Baltic republic of Estonia.
According to Moody’s, “the negative outlook reflects ongoing economic and financial risks in Italy and in the euro area. The uncertain market environment and the risk of further deterioration in investor sentiment could constrain the country’s access to the public debt markets.”
The downgrade of Italy’s public debt will translate into widening spreads on Rome’s government bonds, making it even harder to service the multi-trillion dollar public debt accumulated by successive Italian governments. This all happens as the inept European politicians still clamor over another ill-fated effort to “ring-fence” the Greek debt crisis, pretending that is has not yet spread to other PIIGS countries, including Italy. The Moody’s downgrade is more concrete evidence that policymakers in Europe are totally disconnected from economic, financial and fiscal reality.