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Italy: Moody's Raises Future Bailout Fears

(c) Sky News 2013

A senior official with rating agency Moody's has said it is not yet possible to exclude Italy from being forced to ask for a future eurozone bailout.

Moody's said it will monitor the ability of the newly formed Italian government to overhaul the economy, it told an Italian newspaper on Monday.

"We will have to verify the commitment of the new government and its ability to resolutely pursue the huge structural reforms the country needs to improve its creditworthiness," Moody's senior credit officer Dietmar Hornung told La Repubblica.

"For now the situation remains difficult," Mr Hornung said.

It said help may be needed through the European Central Bank and the European Stability Mechanism.

But Italian 10-year bond yields dropped more than 2% in early trading as markets opened and the MIB stock exchange was up more than 1.5%, on news of the government deadlock being broken.

The ratings agency said on Friday it had kept Italy's sovereign debt rating at Baa2 thanks to the country's reasonably low current cost of funding and its primary surplus.

But Moody's maintained its negative outlook for Italian sovereign debt because of prolonged economic crisis.

Last week, after weeks of political deadlock, Italy elected Enrico Letta of the centre-left to become the new prime minister.

Mr Letta, a 46-year-year-old leftist moderate, leads a broad-coalition government backed by his own Democratic Party and the conservatives of former prime minister Silvio Berlusconi.

A general election in February proved inconclusive, with the electorate split among three main blocs and no party winning enough of the vote to muster majorities in parliament.

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