Italy’s Downgrade Putting Euro Under Pressure

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) September 20, 2011 -- Italy's credit rating was downgraded yesterday evening by ratings agency Standard & Poor's. This was Italy’s first downgrade in the past five years after Greece’s worsening financial situation has heightened concerns that the “Greek contagion” will also take hold of countries like Spain and Italy.

S&P lowered the country’s rating from A+ to A, saying that the weakening economic growth, “fragile” government, and increased borrowing costs will create difficulties for decreasing the second largest debt burden in Europe. Yields on 10-year Italian bonds increased today by three basis points to 5.619%, which is 385 basis points more than yields on analogous German bonds.

The European Central Bank had to buy Italian and Spanish bonds last month after their yields increased to a record high for the Euro amid fears that they will be the next victims of the two year-long debt crisis which led to bail-outs for Greece, Ireland, and Portugal. Another ratings agency, Moody’s Investors Service, will decide next month whether to lower Italy and Spain’s ratings and also will review how Greece is trying to convince international creditors that it deserves another tranche of financial aid to avoid default. Italy is following the likes of Spain, Ireland, Portugal, Cyprus, and Greece as another Euro zone country whose credit rating has been downgraded this year. Italian Prime Minister Silvio Berlusconi passed a 54 billion Euro ($74 billion) package of budget cuts through parliament this month which convinced the ECB to start buying the country’s bonds. The plan, which is intended to balance the budget by 2013, was nevertheless not enough to sway S&P. “Standard & Poor’s assessment seems to be dictated more by media speculation than by real life and has come under the influence of political considerations,” said Berlusconi’s office, adding that the government will fulfill its budget goals and prepare measures to stimulate economic growth. DT Trading analysts say that the jump in yields on Italian bonds is threatening to raise the cost of borrowing right as the country is preparing to sell a large volume of debt securities. Even so, Italy has to sell over 50 billion Euros’ worth of bonds this year in three organized auctions beginning September 27.

Saudi Arabia will spend $43 billion to aid its low-income citizens and religious establishments. Analogously, residents of Kuwait will receive free food supplies for a year and government workers in Algeria will receive a 34% pay raise. The desert cities of the United Arab Emirates will soon be able to have reliable, uninterrupted electricity. DT Trading experts say that all of this is because, according to the US Department of Energy, OPEC member countries are preparing to line their pockets with an unprecedented $1 trillion this year. This happened after the group’s key type of oil – Brent crude - began trading above $100 per barrel for the longest period in its history. The OPEC countries are promising to use record amounts of funds for government and social programs after the “Arab Spring” - the series of revolutions that toppled the rulers of Tunisia, Egypt, and Libya and have since spread to Yemen and Syria.

DT Trading Limited Analytical Department

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