France and Germany have reached an agreement to boost the eurozone's rescue fund to €2tn (£1.75tn) as part of a "comprehensive plan" to resolve the sovereign debt crisis, which this weekend's summit should endorse, EU diplomats said. The growing confidence that a deal can be struck at this Sunday's crisis summit came amid signs of market pressure on France following the warning by the ratings agency Moody's that it might review the country's coveted AAA rating because of the cost of bailing out its banks and other members of the eurozone. The leaders of France and Germany hope to agree a deal that will assuage market uncertainties or, worse, volatility, in the run-up to the G20 summit in Cannes early next month. France would now have to pay more than a percentage point – 114 basis points – over the price paid by Germany to borrow for 10 years as the gap between the two country's bond yields widened to their highest level since 1992. The news cheered US investors. All the major stock markets surged, with the Dow Jones Industrial Average rising 250 points, or 2.2%, to 11,651, after earlier falling by 101 points earlier in the day. US markets have previously reacted uneasily to any new news from Europe. Earlier in the day Goldman Sachs reported third-quarter losses of $393m, only its second loss in 12 years.

Moody's, the ratings agency, issued a warning to France last night that it could face the loss of its coveted status as one of the world's most creditworthy nations after saying the euro debt crisis and slowing world economy left the country's AAA rating under pressure. It said that while the French economy remained able to absorb normal shocks, "the government's financial strength has weakened, as it has for other euro area sovereigns, because the global financial and economic crisis." The warning will come as a shock to many in France and is likely to unnerve markets already anxious at the prospect of the euro debt crisis spreading to the US and Asia. Germany's finance minister, Wolfgang Schäuble, added to the uncertainty earlier in the day when he said detailed talks to solve the crisis were likely to go beyond a self-imposed deadline set for this weekend. He also hinted that a rescue deal will fall short of the "big bazooka" that markets believe is needed to prevent the currency club breaking up. Schäuble said a final package would not be in place until the G20 world leaders' summit in Cannes next month. His comments dismayed investors concerned that Berlin and Paris have failed to grasp the magnitude of the eurozone's debt crisis. Stock markets in London, Paris and Frankfurt fell, while in New York the Dow Jones industrial average plummeted 247 points by the close of trading. A two-month flight of cash from European banks accelerated, according to analysts, while fears grew earlier that ratings agencies were poised to downgrade French sovereign bonds, increasing the difference between France's borrowing costs and those of Germany to the highest level since 1995. Oil prices, which had steadied after recent falls, turned downwards again and the euro fell against the dollar as investors sought safe havens. David Jones, chief market strategist at IG Index, said: "German officials clearly decided that a degree of expectation management was needed, and a statement was made warning that if anyone expected a package to be in place by next Monday then they were setting themselves up for disappointment." Markets were at fever pitch after the French president, Nicolas Sarkozy, and German chancellor, Angela Merkel, said at the weekend that they would reveal a rescue plan this Sunday at a crucial European council meeting. The US treasury secretary, Tim Geithner, warned at the weekend it was crucial to agree a package of measures that would reassure markets and end 18 months of wrangling over how to deal with Greek debts. EU policymakers are due to meet this weekend in Brussels ahead of the G20 conference in Cannes on 4 November hosted by Sarkozy. The chancellor, George Osborne, said the Cannes meeting would be crucial in determining whether the global economy could maintain growth. "The biggest boost to growth across the world – and for Britain – would be a resolution to the crisis in the eurozone. Maintaining the momentum towards that will be the focus of my discussion with my international counterparts." Britain has ruled out participating directly in funding any scheme, though it is likely to become involved in a broader backstop plan put forward by the International Monetary Fund.

Berlin’s DIW institute, one of Chancellor Angela Merkel’s five official advisers, said attempts to boost the €440bn (£384bn) EFSF bail-out fund – possibly to €2 trillion – with guarantees to shore up southern Europe would be “poisonous” for France’s credit worthiness. Dr Ansgar Belke, the group’s research chief, said the leverage proposal emerging as part of the EU’s “Grand Plan” to restore confidence is self-defeating. “It counteracts efforts made so far to stabilise the eurozone debt crisis, which are premised on the AAA rating of a sufficiently large number of strong economies. In extremis, it would probably cause the break-up of the eurozone”, he told newspaper Handelsblatt. Berlin yesterday played down hopes of a major breakthrough as EU leaders rush to complete their plan before a deadline next week. Mrs Merkel’s spokesman said “dreams that everything will be resolved and dealt with by next Monday cannot be fulfilled”. European stock markets slid as traders took profits on the October rally, digesting Chinese data showing a sharp fall in new loans. Germany’s DAX fell 1.8pc, Italy’s MIB was off 2.3pc and the FTSE 100 eased 0.5pc. Wolfgang Schäuble, Germany’s finance minister, said there would be no “definitive solution” but expected a deal to use an enhanced EFSF in “the most efficient way”. It is unclear whether such plans breach last month’s ruling by Germany’s top court, which said the Bundestag may not transfer “fiscal responsibilities” to EU bodies or take on “incalculable” liabilities beyond German control. Any change would need a new constitution and a popular vote.

Geting closer to the Ribbentrop - Molotov Pact implemetation ..!!!

PARIS—France and Germany were moving closer on a comprehensive package to stabilize the euro zone that would bolster the firepower of the bloc's rescue fund and strengthen the region's banks, the countries' finance ministers said Friday, though officials cautioned they were still working on many of the details. French and German finance ministers Friday said they have made progress on delivering a comprehensive package to stabilize the euro zone. Meanwhile the cost of the collateral Greece is expected to provide its creditors has zoomed up. Charles Forelle reports live from Paris. Finance ministers and central-bank chiefs from the Group of 20 leading nations were meeting here Friday and Saturday, with the threat the euro zone's crisis poses to the rest of the world economy and financial system dominating discussions. France's President Nicolas Sarkozy gestures at Germany's Finance Minister Wolfgang Sch??uble after a meeting at the Elys??e Palace in Paris. Meeting ahead of that gathering, French Finance Minister François Baroin and his German counterpart Wolfgang Schäuble said the two governments have developed specific agreements to present to other European countries at a summit in Brussels on Oct. 23. The package—first promised by German Chancellor Angela Merkel and French President Nicolas Sarkozy last Sunday—includes maximizing the force of the euro zone's bailout fund and finding a solution for Greece's debts. "We also made progress on the shared plan to recapitalize banks," Mr. Baroin told reporters after a meeting with Messrs. Schäuble and Sarkozy. As Portugal announces further austerity cuts and Spain experiences another ratings cut, G-20 finance ministers talk to the IMF about a possible role in the euro-zone crisis. France and Germany hold the key to resolving the biggest question hanging over global financial markets: how to boost the European Financial Stability Facility's firepower without requiring nations to contribute further funding or guarantees. According to a European Union official familiar with the situation, Germany and France are weighing two models but leaning towards using the fund to insure bonds from euro-zone countries.

Standard & Poor's Ratings Services has downgraded Spain a notch, citing increasingly unpredictable financing conditions that could squeeze a private sector already pressured by struggling economic growth. The move comes as politicians in Slovakia finally voted to expand Europe's bail-out fund, ending a nail-biting stand-off that threatened the Greek rescue mission and rattled global markets. S&P expects theowing challenges for Spain's private sector as it seeks fresh external financing to roll over high levels of external debt. S&P now rates Spain at AA-, three steps below the top AAA rating. Its outlook is negative. Slovakia became the last of the 17 members to ratify new powers for the €440bn (£385bn) European Financial Stability Facility (EFSF) in a move that will deliver eurozone leaders as much as €3 trillion firepower against the escalating debt crisis. The news came as the Financial Times reported that emerging market countries are working on ways to contribute money rapidly to expand the effective firepower of the International Monetary Fund, with the aim of increasing its role in fighting the eurozone sovereign debt crisis. An announcement is due at the G20 in early November, it is claimed.

BRATISLAVA, Slovakia—Slovakia's parliament has endorsed the amended rescue fund, in a repeat vote, allowing the European Financial Stability Facility to become operational. Slovakia was the last country in the 17-member euro zone to vote on the €440 billion ($606.8 billion) EFSF and the only country to repeat the endorsement vote, having rejected initially late Tuesday. The 114-lawmaker majority in the 150-seat parliament voted to approve the fund. The approval became possible after an earlier vote, demanded by the opposition Smer-Social Democracy party, which approved the holding of an early general election in March 10, 2012. The snap election will come less than two years after regular general polls held in June 2010. The local political turmoil was brought about by the outgoing right-of-center government of Prime Minister Iveta Radicova losing a confidence vote by parliament late Tuesday. 119 lawmakers in the 150-seat parliament voted to hold the general election ahead of schedule. The vote opens the door for the EFSF approval in the repeat vote. Slovak ratification will bring into force a new agreement among the 17 euro-zone countries that dictates how the bailout fund operates. As a result, the EFSF will be able to deploy as much as €440 billion, up from about €250 billion now. It will also be able to buy government bonds in the secondary market and help countries recapitalize their banks, among other things. Democracy in action : vote until it passes and ask for a bribe before passing "it" !!! Is this the E.U. "democracy"???...I SAY , YES, E.U. IS TODAY'S SOVIET BLOCK !!!!

BRATISLAVA, Slovakia – Slovakia's main political parties have reached a deal to approve changes to an EU bailout fund this week, the main opposition leader said Wednesday, just one day after parliament rejected the proposal, causing the government to fall. "Slovakia will ratify the EU bailout fund without any problems. I believe it will happen on Friday this week at the latest," Fico said. Tuesday's vote failed because a junior coalition party, the Freedom and Solidarity party, was against it. In a desperate effort to force that party to vote in favor, Prime Minister Iveta Radicova had tied the vote on the bailout to a confidence vote in the government. When the vote failed, her year-old government collapsed. With the government now defunct — and the promise of early elections — Fico said his party will vote in favor of the bailout fund, which all 16 other members of the eurozone have already supported. The leaders of three coalition parties — Mikulas Dzurinda of the Slovak Democratic and Christian Union, which Radicova belongs to; Jan Figel of the Christian Democrats and Bela Bugar of a party of ethnic Hungarians — confirmed the deal later Wednesday. "We had to pay a political price," Bugar said. "And the early election is the price." The announcement came hours after EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso called on Slovak political parties "to rise above the positioning of short-term politics, and seize the next occasion to ensure a swift adoption of the new agreement." They said the enhancement of the euro440 billion ($600 billion) European Financial Stability Facility is crucial "to preserve financial stability in the euro area. And that is in the interest of all euro countries, including the Slovak people."

Speaking at the European Parliament in Brussels, Mr Barroso called for EU leaders to back his plan that would bring forward the introduction of a permanent rescue mechanism for states from mid-2012 to mid-2013 and would see more rigourous capital standards for banks. "For confidence to return we need to fix the sovereign debt problem, which can only be done through a coherent package and we must therefore urgently strengthen the banks, because, in fact, those two issues are now, whether we like it or not, linked. "This must be co-ordinated through the member states, the European Banking Authority, the ECB and the Commission," Mr Barroso said. Mr Barroso hopes that EU leaders will back the plan when they meet at a summit in Brussels on October 23. Officials say that the Commission, the EU's executive, sees this as the final opportunity to get a grip on the debt crisis, which has already forced three states into multi-billion euro bailouts and now threatens to push the world economy into a second recession.

Europe's embattled leaders gave themselves a two-week deadline to resolve the single currency debt crisis on Monday by delaying a crucial summit. The European Council president, Herman van Rompuy, announced the delay after it became clear that EU leaders were struggling to agree on proposals to expand Europe's bailout fund, and on possible changes to Greece's second bailout. With international lenders also reportedly making slow progress assessing Greece's finances, the summit has been pushed back from next Monday to Sunday, 23 October. But with Slovakia's coalition government failing to reach agreement on the existing deal to give the eurozone rescue fund stronger powers, the eurozone still appeared disunited. The postponement came as George Osborne told MPs that Europe needed to take decisive action immediately as the eurozone was now the "epicentre" of this summer's turmoil on global stock markets. "We need a comprehensive solution which ringfences vulnerable eurozone countries, recapitalises Europe's banks and resolves the uncertainty about Greece," Osborne told the House of Commons. The chancellor added his voice to those calling for the European financial stability facility (EFSF) to be expanded further. "If you're trying to protect larger countries, then €440bn is sadly not enough." Osborne also revealed that prime minister David Cameron had discussed the crisis with Barack Obama on Monday afternoon, a sign that Europe's woes continue to dominate the international agenda. World stock markets rallied again as traders welcomed the bank recapitalisation plan agreed over the weekend by the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy.

The leaders of France and Germany have announced that they are ready to recapitalise Europe's troubled banks and have reached agreement on a "long-lasting, complete package" to counter the bloc's debt crisis. But the German chancellor, Angela Merkel, and Nicolas Sarkozy, the French president, refused to go into detail about the plans, saying they had to think of the markets and iron out "technical issues" before consulting the other 25 leaders in the European Union. The announcement came hours after the governments of France, Belgium and Luxembourg said they had approved a plan for the future of the embattled Franco-Belgian bank Dexia. "We are determined to do whatever necessary to secure the recapitalisation of our banks," Merkel said at a joint news conference with Sarkozy at the chancellery in Berlin on Sunday evening. "A sound credit supply is the basis of sound economic development," she added. Both leaders were tight-lipped on whether they had decided that the €440bn (£380bn) bailout fund, the European financial stability facility (EFSF), could be used to recapitalise banks – a position known to be favoured by the French – or whether it could only be used as a last-ditch resort if a member state could not cope with shoring up its banks' capital on its own. The latter is known to be Merkel's preference, but on Sunday the chancellor would only say: "Germany and France want the same criteria to be applied, and criteria that are accepted by all sides." Merkel added: "We are not going into details today," adding that the duo would present a "complete package" for stabilising the eurozone at the end of the month in time for the G20 summit in Cannes on 3-4 November. "This summit has to be a success for the sake of the global economy," she stressed.

London, 07 October 2011 -- Moody's Investors Service has today downgraded the senior debt and deposit ratings of 12 UK financial institutions and confirmed the ratings of 1 institution. This concludes its review of systemic support assumptions from the UK government for these institutions initiated on 24 May 2011. The downgrades have been caused by Moody's reassessment of the support environment in the UK which has resulted in the removal of systemic support for 7 smaller institutions and the reduction of systemic support by one to three notches for 5 larger, more systemically important financial institutions. According to Moody's, announcements made, as well as actions already taken by UK authorities have significantly reduced the predictability of support over the medium to long-term. Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift. However, it is more likely now to allow smaller institutions to fail if they become financially troubled. The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government.The rating actions include a one-notch downgrade of Lloyds TSB Bank plc (to A1 from Aa3), Santander UK plc (to A1 from Aa3), Co-Operative Bank plc (to A3 from A2), a two-notch downgrade of RBS plc (to A2 from Aa3) and Nationwide Building Society (to A2 from Aa3); and downgrades of one to five notches of 7 smaller building societies. The ratings of Clydesdale Bank were confirmed at A2 (negative outlook).

As outlined in the May press release, we have reviewed the standalone ratings of all entities prior to concluding on the debt ratings. A separate announcement today covers the upgrade of the standalone rating of Co-Operative Bank to C- (mapping to Baa1 on the long-term debt scale) from D+ and earlier announcements cover the upgrades of the standalone ratings of Santander UK, Nationwide, Yorkshire, and Principality Building Societies. A detailed summary of the rating actions and the current levels of systemic support for UK financial institutions is available here http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_136526.
Separate announcements will follow on entities included in the May 24th review, but not concluded in this action: this includes certain subsidiaries of RBS and Lloyds, as well as Bank of Ireland (UK).

For Britain's banks, the perception that European banks are weak and too exposed to sovereign debt is a bigger problem than a Moody's downgrade, says the BBC's business editor, Robert Peston. He writes: The UK banks' downgrade is an inevitable consequence of government policy to reduce the likelihood that they would be bailed out in a crisis - of which the most conspicuous manifestation has been the Vickers' commission recommendations to put retail banks behind a ring fence and make creditors to banks explicitly liable to losses. The important point, for today however, is that these downgrades have been anticipated and discounted by the market for some time, so their real economic impact on the affected banks should be negligible. Mr Peston also gives an interesting run-through of how much capital European banks, including RBS, Lloyds and Barclays, would have to raise under a new set of stress tests, based on figures from French bank Natixis. If RBS was obliged to raise fresh capital, the government would be caught between a rock and a hard place, he writes. The bank has the right to sell new shares to the government at 50p (vs. a 23.5p share price now) under the terms of its previous bailout. This would obviously incur a loss for taxpayers. But the alternative would be the Government fully nationalising RBS... Lloyds has also responded to the Moody's ratings cut on the debt of 12 UK banks this morning. They are also playing down the move.

Eurozone finance ministers have put off until next month any decision to give the green light for a further €8bn bailout for Greece despite recognising that the Athens government had made some considerable progress in slashing the country's debts. Jean-Claude Juncker, Eurogroup chairman, repeatedly made plain early on Tuesday that none of the eurozone countries was urging a Greek default and categorically denied that there was any question of Greece leaving the euro area. In a move certain to disappoint markets, the 17 finance ministers sent signals they had no intention of agreeing to reboot the zone's rescue fund of €440bn closer to the €2tn or more demanded by leading investors and analysts. EU officials reiterated that there was "no Plan B". But Juncker and Olli Rehn, the EU economic and monetary affairs commissioner, indicated that ministers had for the first time discussed measures to improve the bailout fund's efficiency and effectiveness in order to raise its firepower – code for raising the guarantees it needs for buying up more government bonds in the secondary market. Juncker said: "We consider that we should by no means increase the fund's financial volume." He dropped a broad hint that private bondholders would be forced to pay more than the 21% "haircut" agreed at the 21 July meeting that increased the fund's volume and approved the second €109bn bailout for Greece – ascribing that to "technical" reasons. Juncker and Rehn recognised Greece had made strides towards overcoming its debts and budget deficit but said that the Athens government had to be stricter about structural reforms and more ambitious in implementing privatisations.

German finance minister Wolfgang Schauble said it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank. "I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said. Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world". "It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," he said. The comments risk irritating the White House. US Treasury Secretary Tim Geithner has been a key driver of plans to give the EFSF enough firepower to shore up Italy and Spain, fearing a drift into "cascading default, bank runs and catastrophic risk" without dramatic action. Markets across the world ignored the mixed signals about the true scope of EU rescue measures, convinced that EU leaders have a "grand plan" up their sleeves and will unveil the details after the Bundestag has voted on Thursday on the earlier July deal to revamp the fund. France's CAC-40 surged by 5.7pc, led by a 17pc rise for Societe Generale. Germany's Dax was up 5.3pc. The FTSE 100 jumped 4pc in London, the biggest one-day rise this year. Oil jumped almost $4 in New York to $88 a barrel. In Berlin, Chancellor Angela Merkel was fighting for her political life as the rump of lawmakers from her coalition vowed to reject the EFSF package, though the latest tally suggests she may squeeze by with her own majority. Angry dissidents suspect that secret plans are being withheld until after the vote.

Here's a few events to watch out for today:

• Spain and Italy to auction government debt - this morning
• Greek PM George Papandreou addresses a conference for the Federation of German Industries - this morning, Berlin
• CBI Distributive Trades Survey (measuring UK retail sales in September): 11am
• Greek property tax vote - 7pm CET, Athens
• Papandreou/Merkel "working dinner" - evening, Berlin

The trouble is the EU is run by unelected commissioners, the MEP's are just front men, window dressing to give the appearance of democracy. Have you not noticed how everything is impossed on us without debate? Even when stuff goes to national parliaments, it just gets nodded through, no one reads whats in front of them, thats the reason why every regulation fills thousands of pages! - While the eurozone was the focus of financial market fears about debt-strained countries, the problem was actually wider spread. "We have in front of us a global crisis of sovereign risk and we [the eurozone] are the epicenter of this global crisis," he said. He added that the current situation was more precarious than when Lehman Brothers collapsed and sent the global economy into a tailspin in late 2008, as there was no longer the belief in markets that key countries would not default on their debts. He also urged authorities to take decisive action to stem the current troubles, claiming that the risk to the eurozone financial system is growing. "Risks to the stability of the EU financial system have increased considerably," he said in a speech to the Bretton Woods committee in Washington, on the sidelines of the annual IMF meeting.

“Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it.

The U.S. and Europe can do nothing to steer their economies from falling into recession, says New York University economist Nouriel Roubini. A look at his Twitter page shows Roubini, famous for accurately predicting the severity of the recent recession well before it happened, has abandoned all hope for avoiding double-dipping back into economic contraction. "Economy already in recession. Whatever the Fed does now is too little, too late," Roubini tweets. Forecasts are bleak even among those who believe the U.S. economy is not contracting. Blackstone Chief Operating Officer Tony James puts the odds of a double-dip recession at one in three. Even if the economy technically avoids a recession, defined as two consecutive quarters of economic contraction, weak growth will make it feel like a recession for many, he says. "One percent growth is going to feel like a recession for most of America," James tells CNBC. That means weak economic growth and high unemployment may remain the norm for years. "What has happened is that the recovery we were experiencing in 2010 has basically stalled out," Jerry Nickelsburg, senior economist at UCLA Anderson, tells the Ventura County Star. "We're moving sideways. Consumers are being more frugal, squeezed by high gasoline prices and nervous about the turmoil in the financial markets."
He said today’s economy could be as good as it gets for some time. "Slow economic growth and high unemployment mean times are not going to be good for a while," Nickelsburg says. Big multilateral organizations like the World Bank are getting worried as well. "We’re getting closer to the risks of double dip," World Bank President Robert Zoellick tells Bloomberg. "I still wouldn’t predict it, but it really depends on how the risks coming out of Europe are managed."

"The Eurozone will survive" says Fitch..."The issue was never in doubt" . Never in the history of propaganda have so many words been wasted to so little effect.

Why not just abandon the mistake and revert to national currencies. If managed properly it should not be disastrous, but just a money changing exercise, which puts right the daft notion of a common currency in the current situation. They changed to the euro quite simply so change back quite simply and let the drachma etc. float. Debts will still remain but national economies will adjust. The E.U. dinosaur will not like it, but when you make a mistake instead of trying to fudge a solution it is better in the long run to face reality.
The next step is to revert the E.U. to the common market and the ECU and forget federalization and the human rights act, both of which hinder progress and national ambitions. I believe the above would receive the whole-hearted support of the European nations.

The International Monetary Fund has warned in its latest Global Economic Outlook that Europe and the US could slip back into recession next year unless they quickly tackle economic problems that could infect the rest of the world.The apparent 'boom' in living standards, property prices, pensions, benefits and consumer goods wasn't real, it was created on the back of massive personal and government borrowing. I would have thought that much at least was obvious to anyone.
The problem is not really lack of short-term growth, it's the expectation that we should have constantly have growth and that we should be 'better off'' in every way year after year. We can't return to the false boom and so we will have a period of contraction and shrinking of living standards back to just what they should have been without the debt-filled illusion of quick growth. Those shrunken living standards in the developed economy still look pretty good compared to the average African, non-oil Arab or South American state.And so living standards will have to fall, state expenditure will have to be reduced, debt payed down and we will all have to return to the real world
It isn't complicated, after all what is general 'poverty' in the Western world? Leaving aside the very real cases of the homeless and destitute. No new personal computer, no new mobile and no Sky subscription. No free gastric band operations, waiting a bit longer for a new hip or knee. No new car or telly or foreign holidays. Working longer because you're living longer and staying healthier and not expecting 50% of your best salary when you retire. Sometimes you don't need a complicated solution because the problem is simple. We were conned by politicians that all this was affordable and sustainable.. and it wasn't.

Standard & Poor's Ratings Services today lowered its unsolicited long- and short-term sovereign credit ratings on the Republic of Italy to "A/A-1" from "A+/A-1+". The outlook is negative. The transfer and convertibility assessment remains "AAA", as it does for all members of the eurozone. The downgrade reflects our view of Italy's weakening economic growth prospects and our view that Italy's fragile governing coalition and policy differences within parliament will likely continue to limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment Under our recently updated sovereign ratings criteria, the "political" and "debt" scores were the primary contributors to the downgrade. The scores relating to the other elements of our methodology - economic structure, external, and monetary - did not contribute to the downgrade. More subdued external demand, government austerity measures, and upward pressure on funding costs in both the public and private sectors will, in our opinion, likely result in weaker growth for the Italian economy compared with our May 2011 base-case expectations, when we revised the outlook to negative. We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve. Furthermore, what we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges. In my opinion, the measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program.