Moody's downgrades Italy

(Vatican Radio) Italy had its credit rating dropped to two notches above junk status by the US ratings agency Moody’s today, but still managed to sell off a bond package of over $5 billion at its lowest yield since May.

“The downgrading is a reflection of the political uncertainty in the country,” said James Walston, Professor of international relations at The American University of Rome.

The Moody’s report praised the fiscal reforms of the current government of Mario Monti, but cited uncertainty over whether these reforms will be continued by the new government expected to be elected next year.

“It is very unclear who is going to win - not even who is going to win, but who is going to be standing for election, and what the possibilities are,” Walston told Vatican Radio.

The populist Five Star Movement, led by comedian Beppe Grillo, is polling at nearly 20%, and former Prime Minister Silvio Berlusconi has announced he will once again lead the centre-right.

“[The situation] sends shivers down the spines of bankers and politicians everywhere,” Walston said. “Italy is in for a very uncertain ride.”

Listen to the full interview by Charles Collins with James Walston: