Fitch downgrades five eurozone countries

Credit ratings agency Fitch has downgraded the sovereign ratings of five eurozone countries, including Italy, Spain and Belgium.

The downgrades follow earlier action in December 2011, when the agency placed six eurozone countries on “Rating Watch Negative”. All have now been removed from rating watch.

Italy had its issuer default rating downgraded from AA+ to A-, Spain moved from AA- to A and Belgium was downgraded to AA from its former AA+ status.

Cyprus was downgraded to BBB- from BBB, while Slovenia moved downwards from AA- to A. However, Ireland was not downgraded after being placed on Rating Watch Negative and had its BBB+ rating affirmed.

All six eurozone countries carry a negative outlook, “indicating a slightly greater than 50 per cent chance of a downgrade over a two-year time horizon”.

“Overall, today’s rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the European Central Bank’s three-year long-term refinancing operation in easing near-term sovereign and bank funding pressures,” according to Fitch.

“Nonetheless, the intensification of the eurozone crisis in the latter half of last year undermined the effectiveness of ECB monetary policy and highlighted the financing risks faced by eurozone sovereign governments in the absence of a credible financial firewall against contagion and self-fulfilling liquidity crises.”

In its report, the agency said it believed European leaders would honour commitments “to enhance economic policy coordination” and also backed moves to bring forward the creation of the European Stability Mechanism and increase the resources of the International Monetary Fund.

“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,” it adds.

Negative outlooks remain on the AAA-rated France and BB+ Portugal , with stable outlooks for the remaining eurozone countries with the exception of CCC-rated Greece.