Moody's cuts Italy's credit rating one notch; stable outlook

Italy's Interior Minister Matteo Salvini gestures during a news conference with Prime Minister Giuseppe Conte after to approve a new decree of the measures on immigration and security at Chigi Palace in Rome Italy

That has never happened before.

The concerns about the budget Italian, however, have pushed the rating agency Moody's to lower Friday night the rating of Italy by one notch to "Baa2" to "Baa3", the last level of investment grade. He said the letter is not final and there is still time which should be "used productively" to continue to exchange views.

Interior Minister Matteo Salvini today dismissed ratings agency Moody's decision to downgrade Italy's credit standing because of the government's controversial budget plans and said the country's outlook was "stable".

"I can not imagine a Europe without Italy or Italy without Europe", Moscovici said.

"Most of the government's spending increases are structural in nature, implying that they will be hard to reverse", Moody's wrote. The effect has been to push values down and the interest rate on government bonds, referred to as the yield, to more than three percentage points higher than safer German bonds. The 5-Star movement opposes such a move because it could benefit organized crime or tax cheats hiding money aboard.

But asked if Italy would veto a renewal, Salvini said: "We can only play the veto joker once in Europe". This means Italy will fall foul of a previously mandated maximum deficit level of 0.8% of GDP.

He said he would visit EU Commission President Jean-Claude Juncker in the near future to discuss the issue.

Italian Minister of Foreign Affairs and International Cooperation Enzo Moavero Milanesi, right, shakes hands with EU Commissioner for Economic and Monetary Affairs Pierre Moscovici on the occasion of their meeting at the Foreign Ministry Farnesina Palace in Rome, Friday, Oct. 19, 2018.

On Saturday, Deputy Premier Matteo Salvini said he wasn't anxious and that the government was merely doing what was best for Italians.

Brussels has demanded Italy cut spending and reduce its public deficit in order to pare down its debt pile.

Concerns over Italy's budget spending adding to the massive debt of the eurozone's third largest economy could hamper efforts to reform the framework of the EU's single currency, Dutch prime minister Mark Rutte warned his Italian counterpart on the sidelines of the European Union summit on Thursday (18 October).

The government's budget plan targets a decrease of the deficit to 2.1 per cent in 2020 and 1.8 per cent in 2021.

EU Commission chief Jean-Claude Juncker said the EU has always been generous with Italy when it comes to assessing its budget, and that EU leaders had already approached him to make sure not to be too flexible on strict deficit and debt levels when combing through the details of Italy's spending plans.

Moody's said the planned measures should boost the country's output, but predicted that they would have less impact than the government was predicting.

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