Moody’s places Italy on downgrade watch, Baa2 rating threatened

In the run-up to Italy’s weekend political strife, Moody’s placed Italy’s Baa2 rating on downgrade watch, citing a “material weakening in Italy’s fiscal strength, given the fiscal plans of the new coalition government.” Moody’s also noted that structural reform efforts underway are threatened by the new Italian government coalition.

The weekend’s developments in Italy are unlikely to spark much confidence in Moody’s though, following the Italian President’s rejection of the coalition party’s nominee for Economy Minister, a vocal critic of the Euro. Italy’s government has failed to be formed following March’s election, and if the Italian President selects an unelected technocrat to the economy position it could spark a run of re-elections, further gumming up the Italian political system and garnering support for the far-right and Euro-sceptic government coalition.