Standard & Poor’s cut Italy’s credit rating on Tuesday in a surprise move that increased strains on the debt-stressed euro zone, and the International Monetary Fund said Europe’s leaders were failing to act decisively enough to resolve the crisis. Analysts said the one-notch downgrade, citing poor growth prospects and political instability, was ominous for the global economy and would add to mounting strains on European banks as talks to avoid a Greek default drag on. S&P’s rating is now three notches below rival agency Moody’s, putting Italy below Slovakia and on a par with Malta. “There is a wide perception that policymakers are one step behind the action, markets,” IMF chief economist Olivier Blanchard told a news conference after the Fund warned both Europe and the United States could slip back into recession.
“Europe must get its act together,” he said. Italy’s downgrade overshadowed glimmers of progress in Greece’s negotiations with international lenders to avoid running out of money within weeks, and news that Brazil was willing to pump in $10 billion through the IMF to aid Europe. “Italy is a much bigger deal than Greece,” said Kathy Lien, director of currency research at GFT in New York. Italian Prime Minister Silvio Berlusconi said S&P’s decision did not reflect reality and his government was already preparing measures to spur growth. Under mounting pressure to cut its debt, the government pushed a 59.8 billion euro austerity plan through parliament last week, pledging a balanced budget by 2013.
