Fitch cuts Italy credit rating over euro crisis

Fitch cut Italy\'s credit rating by one notch to A+ from AA- with a negative outlook on Friday, following downgrades by Moody\'s and Standard & Poor\'s as the country comes under increasing pressure on the markets. \"The downgrade reflects the intensification of the euro zone crisis that constitutes a significant financial and economic shock which has weakened Italy\'s sovereign risk profile,\" Fitch said in a statement. It said the outlook on Italy\'s long-term ratings was negative, meaning that they could be downgraded further. \"A credible and comprehensive solution to the crisis is politically and technically complex and will take time to put in place and to earn the trust of investors,\" Fitch said. \"The high level of public debt and fiscal financing requirement along with the low rate of potential growth rendered Italy especially vulnerable to such an external shock,\" it added. It said recent austerity measures had boosted fiscal consolidation but criticised \"the initially hesitant response by the Italian government to the spread of contagion\" from Europe\'s debt crisis. Fabrizio Saccomanni, number two at the Bank of Italy, said the Fitch decision was nothing new, noting that the ratings agencies acted together and \"they all go in the same direction.\" Fitch stressed that \"Italy\'s sovereign credit profile remains relatively strong and is supported by a budgetary position that compares favourably to several European and high-grade peers.\" The agency noted that government is expected to meet its deficit target for 2011 of 3.9 percent of gross domestic product and achieve a primary budget surplus, which excludes interest payments, of close to 1.0 percent of GDP. Despite deficits that stay close to the EU ceiling of 3.0 percent of GDP, Italy has an enormous debt of over 1.9 trillion euros ($2.5 trillion), which comes to around 120 percent of the country\'s output, double the EU ceiling on public debt. But Fitch said that \"despite the high public debt burden, the budgetary adjustment necessary to stabilise and gradually reduce government debt to GDP ratio is eminently achievable.\" Fitch said growth in Italy is constrained by weaknesses that \"are well known\", including high public debt and tax burden, an inefficient public sector, barriers to competition, an inflexible labour market and a pronounced \"north-south divide\". Efforts to address these constraints and promote reforms with the public have \"not been sought or secured,\" Fitch cautioned. On Tuesday, Moody\'s downgraded Italy\'s rating from Aa2 to A2 with a negative outlook, also citing long-term debt and slow economic growth. The government sought swiftly to downplay Moody\'s decision, saying it was \"expected\" and the administration was working \"with even greater determination to achieve our objectives for the public finances.\" The Moody\'s move came two weeks after Standard & Poor\'s downgraded Italy\'s sovereign debt rating. Interest rates on Italy\'s enormous debt jumped after the S&P downgrade, with investor confidence also hit by the announcement that the public deficit climbed in the second quarter.