Belfast Telegraph

Berlusconi points to his austerity drive after Italy gets downgraded

By Nicola Winfield

Italy has criticised Standard -amp; Poor's for downgrading its credit rating, saying the decision was out of touch with reality at a time when the government is working to reduce its debts.

S-amp;P cut Italy's credit rating by one notch to A from A+ in light of what it sees as the country's weakening economic growth prospects and higher-than-expected levels of government debt.

Though the rating is still five steps above junk status, it is three below that given by rival Moody's, which is currently assessing Italy.

Milan's stock market brushed off the downgrade and S-amp;P's accompanying warning that further cuts may come as investors hoped for progress in Greek debt talks. However, the yield on the country's 10-year bond spiked up 0.13 percentage point to 5.65%.

In a bid to calm markets, Premier Silvio Berlusconi's office insisted in a statement yesterday that it had a solid majority in parliament, which passed measures to get a tighter grip on the public finances through a package of tax increases and budget cuts.

It said the government was working on growth and vowed to balance the budget by 2013.

S-amp;P's evaluation, the government said in a statement, "seems dictated more by behind-the-scenes reports in newspapers than reality and seems contaminated by political considerations".

It said the fruits of its growth and austerity plans "will be seen in the near-medium term".

S-amp;P also warned that it may downgrade Italy again, slapping a negative outlook on its ratings. "What we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges," S-amp;P managing director David T Beers said.

Last week, Italy's parliament gave final approval to the government's austerity measures, a combination of higher taxes, pension reform and spending cuts that the government says will shave more than €54bn (£47bn) off Italy's deficit over three years.