Fitch Ratings decided that the inconclusive election results was reason enough to cut the sovereign debt rating on Italy because it reduces the likelihood that a new government can be formed in the coming weeks.

Specifically, Fitch downgraded Italy to "BBB+" from "A-" and kept the outlook at negative. "The downgrade reflects that inconclusive results of the Italian parliamentary elections on February 24th-25th make it unlikely a stable new government can be formed in the next few weeks. With fourth quarter 2012 data confirming that Italy's ongoing recession is one of the deepest in Europe, the increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy," Fitch said.

Standard & Poor's (S&P), however, played down the event noting in its latest Capital Markets report that credit markets appear unaffected by Italy's election results.

Thus, S&P reminded investors that they "do not expect the results to have any immediate implications for our unsolicited rating on Italy ("BBB+/Negative/A-2").

However, S&P did warn that there is a risk that the incoming government "might not be seen as having a sufficiently strong mandate to further implement important structural reforms to improve Italy's economic growth prospects".

These analysts also feel that the Italian economy could remain weak for a protracted period.

JM

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