Italy's new prime minister, Mario Monti, said the euro zone's third-largest economy faces an emergency, and he promised sweeping but fair reforms to dig the country out of a major financial crisis. Monti's government of technocrats must pursue fiscal and structural economic reforms but the downturn in Italy and Europe will complicate his job, Fitch said"Italy is likely already in recession and the downturn in activity across the euro zone has rendered the task of the new government much more difficult," Fthe ratings agency said in a statement. Fitch, which downgraded Italy to A+ from AA- with a negative outlook last month, warned it would cut the country's ratings to the low investment grade category if it were unable to borrow at sustainable rates on the markets. "Sustaining political and public support for structural reforms and austerity will be challenging in the face of rising unemployment. Convincing investors that the reforms will be effectively implemented and will boost economic growth over the medium term will be equally if not more challenging," it added. Italy's borrowing costs hovered close to euro-era highs on Thursday, with yields on 10-year bonds touching 7.1pc early in the day - past the levels that forced its smaller neighbours Greece and Portugal to seek a bail-out. The country has to refinance €312bn (£267bn) of debt next year. Fitch said Italian bond yields had risen to a level which, if protracted, would place public debt on an unsustainable path. 
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Thursday, November 17, 2011
Fitch: Italy is already in recession
Italy's new prime minister, Mario Monti, said the euro zone's third-largest economy faces an emergency, and he promised sweeping but fair reforms to dig the country out of a major financial crisis. Monti's government of technocrats must pursue fiscal and structural economic reforms but the downturn in Italy and Europe will complicate his job, Fitch said"Italy is likely already in recession and the downturn in activity across the euro zone has rendered the task of the new government much more difficult," Fthe ratings agency said in a statement. Fitch, which downgraded Italy to A+ from AA- with a negative outlook last month, warned it would cut the country's ratings to the low investment grade category if it were unable to borrow at sustainable rates on the markets. "Sustaining political and public support for structural reforms and austerity will be challenging in the face of rising unemployment. Convincing investors that the reforms will be effectively implemented and will boost economic growth over the medium term will be equally if not more challenging," it added. Italy's borrowing costs hovered close to euro-era highs on Thursday, with yields on 10-year bonds touching 7.1pc early in the day - past the levels that forced its smaller neighbours Greece and Portugal to seek a bail-out. The country has to refinance €312bn (£267bn) of debt next year. Fitch said Italian bond yields had risen to a level which, if protracted, would place public debt on an unsustainable path. 
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Fitch calculated that JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley have a total of $50bn tied up with Greece, Ireland, Italy, Portugal and Spain. They have $188bn exposure to France.
UK bank shares are all down this morning (Barclays is the biggest faller, down 1.5%). So is the wider market, with the FTSE 100 down 46 points (or 0.8%).
Spanish government bonds have been hit hard in early trading, again.
The yield on the Spanish 10-year bond has spiked to 6.6% -- that's a new record high for the euro era, and worryingly close to the 7% mark. Italian yields also rose again (hitting 7.12%).
France is also shifting higher - with its 10-year yield reaching the 3.8% level.
Not encouraging, ahead of France and Spain's bond auctions. Peter O'Flanagan of Clear Currency commented that:
German Chancellor Angela Merkel on Thursday reinforced her opposition to expanding the ECB's role in supporting sovereign-debt markets, saying that this wouldn't immediately solve the euro-zone crisis. Since starting its bond-buying program last year, the ECB has bought nearly €187 billion of government bonds.
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