U.S. ratings agency Fitch has downgraded the credit ratings for five European nations including leading economic heavyweights Italy and Spain.
The agency on Friday lowered credit ratings for the five nations by one notch and placed a negative outlook on all of them, as well as on Ireland. Those nations downgraded included Belgium, Cyprus, Italy, Slovenia and Spain.
Italy went down to A- credit rating while Spain was downgraded to A. Ireland's BBB+ rating was affirmed but it also received a negative outlook.
- Belgium: AA+ to AA
- Spain: AA- to A
- Italy: A+ to A-
- Cyprus: BBB to BBB-
- Slovenia: AA- to A
Fitch Ratings blamed the revisions on "the marked deterioration in the economic outlook" in Europe and "the absence of a credible financial firewall against contagion and self-fulfilling liquidity crises.
It said that European leaders “gradualist” approach to tackling the crisis meant that Europe will continue to face episodes of severe financial volatility that would erode government’s ability to repay debt.
European leaders have been criticized for moving too slowly in tackling the crisis, which started in October 2009 when Greece admitted it was in deep financial trouble. Led by Germany, the eurozone’s largest member, governments have resisted sweeping solutions such as pooling their borrowing power in so-called eurobonds and have balked at increasing the financing of their bailout funds from €500 billion. Efforts have focused instead on making bailed-out countries try to cut spending and reduce their budget deficits. The 17 members have also agreed to come up with a treaty requiring national laws to limit deficits.
At the World Economic Forum gathering in Davos this week, leading European finance chiefs have sought to reassure anxious global business leaders that Europe is on track to solve its debt crisis.
Fitch said the eurozone’s difficulties would be compounded by a shrinking economy, now that many economists expect at least a mild recession.
Judging by the wording of the Fitch report, the agency doesn't seem to have a lot of faith in the EU to resolve its financial issues (via Business Insider):
In Fitch's opinion, the eurozone crisis will only be resolved as and when there is broad economic recovery. It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration.
However, as BI notes, perhaps these downgrades shouldn't come as a huge shock, especially "after S&P cut the long-term issuer ratings of nine eurozone countries two weeks ago."
The Associated Press contributed to this report.