Fitch downgrades rating of five eurozone countries

washington — Rating agency Fitch has downgraded five eurozone countries, including Italy and Spain, citing their vulnerability to sharp turns in market sentiment amid Europe’s debt crisis.

By (AFP)

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Published: Sun 29 Jan 2012, 10:49 PM

Last updated: Tue 7 Apr 2015, 11:22 AM

Fitch cut credit ratings on Italy, Spain, Belgium, Slovenia and Cyprus, and lowered its outlook on Ireland, saying the “near-term economic outlook highlight(s) the greater vulnerability to monetary as well as financing shocks faced by these sovereign governments.”

It hit at European politicians’ “gradualist approach” to systemic reform in the eurozone as Greece teeters on a debt default and the financial turmoil stalls economic growth. “In Fitch’s opinion, the eurozone crisis will only be resolved as and when there is broad economic recovery,” the agency said in a statement on Friday.

“It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration.”

The negative ratings revisions, potentially raising the countries’ borrowing costs, added pressure to European Union leaders struggling to deal with Greece’s debt crisis and build a financial firewall to contain the contagion.

Fitch lopped two notches off the ratings on Italy, Spain and Slovenia, saying that Italy faced too-slow growth against its rising debt and Spain faced “a significantly worsened fiscal and economic outlook.”

Italy was downgraded to “A-”, and Spain and Slovenia to “A”.

Fitch cut by one notch Belgium, to “A,” and Cyprus, to “BBB-”.

Ireland’s rating at “BBB” was maintained, but Fitch put the country on a “negative outlook,” signaling it could suffer a downgrade. The other five countries were already on negative outlook.

Fitch said that its negative outlooks on those six, as well as those on France and Portugal, primarily reflected the risk that the crisis could intensify further.

“A deeper and more prolonged economic recession than currently anticipated would undermine political support for, and public acceptance of, fiscal austerity and structural reform,” Fitch warned.

“It would also have the potential to weaken the commitment of the economically and fiscally strongest eurozone countries, and the ECB, to providing necessary support to eurozone peers.”

Italian Prime Minister Mario Monti said that he took the downgrade news with “detached serenity.”

Fitch’s comments “reveal things which are not particularly new,” he told Tg1 television.

“Monday we go to Brussels to work on bettering the eurozone,” he said.

The downgrades came after the International Monetary Fund on Tuesday slashed its growth forecast for the single-currency area, projecting a 0.5 percent contraction for 2012.

It was also ahead of an EU summit in Brussels on Monday set to negotiate a fiscal compact aimed at resolving the eurozone debt crisis. Britain remains opposed to the idea.

Critics say Europe has been heavy on talk and light on action.

European Central Bank chief Mario Draghi, speaking at the World Economic Forum in Davos, Switzerland, appeared to echo that view.

The ECB president said Friday that in the past five months, “Much has been discussed and put on paper” regarding regulatory policy.

But there had been “relatively less policy implementation.” —

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