Moody's downgrades Italy two notches

Moody's has cut Italy's credit rating by two notches to Baa2 as the euro area's third biggest economy faces higher funding costs and contagion risk from Greece and Spain.

The ratings company said further downgrades are possible, according to a statement released in Frankfurt today. "Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets," said Moody's. "Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding." Italy's bond rating was cut from A3 to Baa2, which is two levels above junk and one above Spain. While Italy is on track to bring its budget de...