Bloomberg News

Italian Cuts Negative for Local Governments, Moody’s Says

September 19, 2011

(Updates with Italy’s rating in fifth paragraph, comment by economist in sixth.)

Sept. 19 (Bloomberg) -- Italy’s plans to eliminate the budget deficit by 2013 may hurt the debt ratings of the nation’s regional and local governments, Moody’s Investors Service said in its Weekly Credit Outlook.

“They add imminent pressure to already stretched budgets and introduce uncertainties on the allocation of powers and responsibilities to local governments,” Moody’s said.

Prime Minister Silvio Berlusconi won final parliamentary approval on Sept. 14 for a 54 billion-euro ($74 billion) austerity package that aims to cut costs and increase taxes in an attempt to stem Italy’s surging borrowing costs.

More than 1,000 mayors of towns and cities protested in Milan last month against the package, which includes cuts to regional and local governments of 4.2 billion euros in 2012 and 3.2 billion euros in 2013.

Italy’s credit rating remains under review for a possible downgrade for the first time in almost two decades by Moody’s, amid concern that economic growth will remain too weak to reduce the region’s second-largest debt burden, the rating company said on Sept. 16. Moody’s said it will continue to evaluate Italy’s Aa2 rating and strive to conclude its review, begun on June 17, within the next month.

Moody’s has left “the door open for a potential one to two notch downgrade in the short term,” Fabio Fois, European economist at Barclays Capital in London, wrote in a note to investors today. Any risk identified by Moody’s in Italian debt is unlikely to “dissipate in one month’s time,” he said.

--Editors: Jeffrey Donovan, Andrew Atkinson

To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Chiara Vasarri in Rome at vasarri@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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