Eurozone downgrades

Credit ratings agency Fitch on Friday announced that it was lowering its assessment of Italy and Spain's creditworthiness, though it also said that it would let Portugal's current credit rating stand.

Like fellow agency Moody's on Tuesday, Fitch dropped Italy's bond ratings one notch from AA- to A+, also saying the outlook for the country was negative, meaning further downgrades are possible. Italy now sits in the upper-medium grade category, with what Fitch's website describes as a strong capacity for repayment, which "may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings."

"The downgrade reflects the intensification of the eurozone crisis that constitutes a significant financial and economic shock which has weakened Italy's sovereign risk profile," Fitch said in its explanatory statement. "A credible and comprehensive solution to the crisis is politically and technically complex and will take time to put in place and to earn the trust of investors."

The agency also criticized the "initially hesitant response by the Italian government to the spread of the contagion" in its statement on Friday, which helped send otherwise rebounding markets back into decline.

Spanish sums

Spain's sovereign debt rating was cut by two notches from AA+ to AA-, leaving the country at the bottom end of Fitch's high grade category - expressing a "low default risk" and a "very strong capacity for repayment … not significantly vulnerable to foreseeable events," according to the agency's website.

For Spain, also, Fitch said its outlook was negative, raising the specter of further cuts in the future.

Fitch said it expected Spanish economic growth not to exceed 2 percent between now and 2015, adding that the country's 20 percent unemployment rate was likely to remain high.

The agency also announced that it would hold Portugal's lower BBB- credit rating steady for now, but said that its outlook for the country remained negative.

The euro slipped in value against the dollar after the announcement, which came after most European markets had shut down for the weekend. US markets, however, began to wobble again after being buoyed by strong US employment figures for September in the preceding 24 hours.

Neither Spain nor Italy have as yet sought any form of international financial assistance to deal with their existing credit obligations, though some analysts believe that they might soon follow in the footsteps of fellow eurozone members Greece, Ireland and Portugal.

Author: Mark Hallam (AFP, AP, dpa, Reuters)
Editor: Nancy Isenson