The US isn’t singing the downgrade blues alone; S&P knocked Italy down a peg today, citing concerns about its economic growth and its fragile governing coalition. The agency slashed Italy’s rating to “A,” or five ranks above junk status, and maintained its negative outlook, according to the Wall Street Journal. The move sent the euro tumbling against the dollar in Asian trading. Italy, the Eurozone's third-largest economy, must sell or roll over $152 billion in bonds by the end of the year to avoid default.
The downgrade will likely increase Italy’s borrowing costs, making it harder to pull it out of its debt crisis. It’ll also put pressure on Moody’s, which currently has Italy ranked three notches higher, to downgrade as well. “Italy is still perceived to be in a 'muddling through' phase, clutching at straws and politically irresponsible,” said one investment consultant. “A downgrade draws attention to these factors, making it even more difficult to restore confidence in Italian debt.”