The Fitch ratings agency downgraded the sovereign credit ratings of Italy and Spain, the third and fourth largest countries in the euro zone, on Friday. The agency said high debt and a poor outlook for growth put both countries on shakier ground, The Associated Press reports. Fitch also said its long-term outlook for both countries was negative.
Fitch lowered Italy's rating one level from AA- to A+ and cut Spain’s rating by two notches, from AA+ to AA-, the AP reports.
According to Bloomberg News:
Spain’s rating, which was AAA until 2010, has now been lowered twice by Fitch as the deepest austerity measures in three decades fail to convince investors the nation can stem the surge in its debt burden. Moody’s Investors Service also warned on Oct. 4 “all but the strongest euro-area sovereigns” are likely to see further downgrades, as it cut Italy’s rating for the first time in almost two decades.
Standard & Poor's also downgraded Italy in recent weeks.
(More from GlobalPost: Italy's sovereign debt taken down a notch)
Observers hoped the Fitch downgrade would push the Italian government to adopt pro-growth structural reforms, Reuters reports.
"There has been a chorus of appeals from the ECB, the EU and the IMF,” ING analyst Paolo Pizzoli told Reuters. “They have all asked for structural reforms for growth and this (Fitch) is another element in that direction.”
However, Italian Foreign Minister Franco Frattini shrugged off the news, telling Reuters that the move was fully expected and that "markets don't care much about the role of Fitch, Moody's and company."
Fitch’s issues with Spain included the fact that it has the euro zone's highest jobless rate of more than 20 percent, Reuter reports. According to Reuters:
It said more reforms will be necessary to make Spain's economy more competitive, particularly in the labor market, and that another euro30 billion ($40 billion) may be needed to recapitalize the country's weaker banks.
In a separate announcement, Fitch said it had also put Portugal, currently rated BBB-, on watch for a possible downgrade, the AP reports.