The credit ratings of Italy and Spain, with Europe's third and fourth largest economies, have been cut, mostly on fears that the continent's debt crisis could cause new financial problems for the two countries.
Fitch Ratings said Friday it has cut Italy's credit standing one notch , with a negative outlook, meaning it could be lowered again. Fitch said that concerns about Greece and other European countries with large debts pose a “significant financial and economic shock” to Italy that has heightened the risk for investors looking to buy Italian bonds.
The financial services firm downgraded Spain's credit rating by two notches , also with a negative outlook. Fitch blamed the downgrade on the European debt crisis, regional government spending in Spain and its weak economic growth.
The Fitch downgrades came as another ratings company, Moody's Investors Service, cut the credit ratings of 12 British banks over concerns that the government will not provide adequate support to the institutions if they become financially troubled.
Moody's said the bank downgrades were caused by a “reassessment of the support environment in the U.K.” It said recent government moves have “significantly reduced the predictability of support” for the financial firms over the “medium to long-term.”
The affected firms include the government-controlled Royal Bank of Scotland, which had its rating slashed by two levels. The debt rating of Lloyd's TBS Bank was reduced by one notch.
Moody's says the British government is likely “to allow smaller institutions to fail.” But Moody's said it does not believe there has been a deterioration in the financial strength of the banking system or the British government, saying the government is likely to continue to provide “some level of support to systemically important financial institutions.”
Despite these negative assessments, another financially troubled European country — Ireland — says its fortunes are improving.
Irish Prime Minister Enda Kenny says his country is aiming to be the first to exit its international bailout and resume financing its government operations on its own.
Mr. Kenny told an international economic forum in Dublin that Ireland is recovering and will soon no longer have to rely on foreign assistance. He said financial service companies will in time give the country a better credit rating.
Ireland was forced last year to secure a $90 billion bailout from the European Union, the International Monetary Fund and the European Central Bank. But unlike in Greece and Portugal — the other two European countries that needed bailouts — Ireland's economy is quickly improving from a three-year recession.
The Irish leader said that of the three countries, “Ireland leads by example.”
Mr. Kenny said Ireland expects to meet its 2011 budget deficit target of 10.6 percent of the country's economic output set by its international creditors. He said the interest rate on the country's loans has been sharply cut, down from more than 14 percent in July to under 8 percent.
German Chancellor Angela Merkel and French President Nicolas Sarkozy, whose countries have Europe's two strongest economies, will meet Sunday to discuss the next steps in dealing with its debt crisis.
