Berlusconi lashes out over ratings cut

The Italian Prime Minister, Silvio Berlusconi, attacked Standard & Poor's decision to cut his country's credit rating as "politically motivated", as Italy looked to distance itself from Greece's debt crisis.

"The assessments by Standard & Poor's seem dictated more by newspaper stories than by reality and appear to be negatively influenced by political considerations," he said.

The agency cited weak growth as it lowered Italy's rating to A from A+, leaving Rome ranked below Slovakia.

The cut, which comes after his Government pushed a €59.8 billion ($99.6 billion) austerity package through Parliament last week, stoked worries about contagion from Greece, where officials yesterday resumed talks to secure the €8 billion they need to avert a debt default next month.

The troika of international lenders from the EU, the IMF and the European Central Bank, who held their second conference call in as many days with Greek officials in Athens yesterday, are demanding that Greece agree to deeper austerity measures as a condition for releasing the funds.

But analysts are growing increasingly concerned, with the Fitch ratings agency warning yesterday that Greece was likely to default, although it would not leave the currency bloc.

Alongside Greece and Italy, markets were also keeping a close eye on Spain, which encountered higher borrowing costs when it auctioned short-term debt yesterday.

In another sign of stress in the banking sector, the amount of bank borrowing from the European Central Bank hit a seven-month high yesterday, with analysts saying European banks are looking to hoard cash.

Fears of a potential repeat of the 2008 financial crisis were also heightened by reports that Bank of China has stopped foreign exchange trading with some European banks because of the debt crisis.

- Independent