Italy downgraded, IMF says Europe behind the curve

Tue Sep 20, 2011 6:37pm EDT
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By Catherine Hornby and Angeliki Koutantou

ROME/ATHENS (Reuters) - 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 policy-makers are one step behind markets," IMF chief economist Olivier Blanchard told a news conference after the IMF warned that both Europe and the United States could slip back into recession.

"Europe must get its act together," he said.

Another IMF official said talk of splintering the euro zone was "crazy."

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.

A Greek Finance Ministry official said on Tuesday the government has agreed to front-load austerity measures and is close to securing a deal with its international lenders.   Continued...

<p>A woman walks past Milan Stock Exchange July 12, 2011. REUTERS/Paolo Bona</p>