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Moody's cuts Italy's credit rating

Reforms OK but economy worsens, Monti in Idaho

Moody's cuts Italy's credit rating

(ANSA) - New York, July 13 - Moody's cut Italy's credit rating two notches, from A3 to Baa3, saying the country's short-term economic outlook has 'deteriorated'. Baa3 is just two notches above junk status. The news was announced Friday as Italian Prime Minister Mario Monti was landing in Idaho, United States, to attend the Allen Conference in Sun Valley alongside the most prominent members of the US finance world and media. Monti is attending the conference with the objective of attracting investment to Italy. Moody's downgraded the government bond rating saying the country was likely to see a sharp rise in borrowing costs due to factors including signs of erosion of foreign investments. Moreover, the rating agency said, ''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''. In spite of the Monti government's measures, Italy's short-term economic outlook has worsened and access to credit markets could toughen. Moreover, the political climate heightens the risk that reforms will not be implemented as national elections scheduled next spring get closer, Moody's also said. Weaker growth and higher unemployment create ''risk of failure to meet fiscal consolidation targets'', Moody's also said. Political forces risk endangering a government programme which could improve growth and the government's balance sheet as recession looms and balancing Italy's financial budget remains a major challenge, the rating agency also said. The news came just hours before Italy, the eurozone's third largest economy, was due to go to the financial markets to raise some 5.25 billion euros in an auction of medium and long-term government bonds.

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