Policymakers come under even more pressure to resolve the euro zone debt crisis, following a decision by ratings agency S&P to downgrade the euro zone's third largest economy.
ITALY-DOWNGRADE - Italy is again under the spotlight in Europe's debt crisis, after a one notch downgrade by ratings agency S&P put its credit worthiness below Slovakia and on par with Malta.The cost of insuring against default is expected to be pushed up as a result.
Robert Halver is from Baader Bank.
ROBERT HALVER FROM BAADER BANK AG, SAYING:
"The downgrade didn't come as a big surprise but it's getting more and more ugly because the outlook is negative, that means that we will have further downgrades. It's a pity because Italy would be able to cut even more expenses and do a next industrial revolutions but politics are very weak right now in Italy."
Last week the Italian government passed an almost 60 billion euro austerity plan after coming under increasing pressure to cut its 1.9 trillion euro debt.
But it seems it wasn't enough to prevent Italy's growth outlook worsening.
S&P are also concerned about the ability of Silvio Berlusconi's government to deal with the crisis, a sentiment echoed on the streets of Rome.
ROME RESIDENT ROMANA TINTO SAYING:
"These politicians, this joke of Berlusconi - we have had enough. Everyone should get sacked. All the Italian politicians need to go home. I am a grandmother and we should be helping the youngsters because if we don't Italy will be finished."
In an emailed response, Italian Prime Minister Silvio Berlusconi said the downgrade doesn't reflect reality and accused S&P of being influenced by negative media coverage.
Berlusconi is currently battling a widening prostitution scandal and fraud allegations.
The downgrade again increases pressure on European banks with French lenders among the most exposed.
They hold $410 billion euro of Italian debt - that's seven times more than the amount of Greek debt they own.
Shares in Societe Generale and BNP were down more than 3 per cent, while the euro initially fell half a percent against the dollar but later recovered.
Kirsty Basset, Reuters.
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