ROME—Silvio Berlusconi’s government, hit by a credit rating downgrade, blamed “polluted” analysis on Tuesday in another test for the eurozone, deep in crucial rescue talks with Greece.
Standard & Poor’s ratings agency said Italy had a weak coalition trying to govern an economy with feeble growth prospects, but the government hit back saying its analysis was flawed and the coalition was “very stable.”
The S&P statement came as the government headed by the 74-year-old Silvio Berlusconi, who is struggling to fight off new sex and blackmail scandals and whose popularity rating has dropped to an all-time low, has struggled to overcome infighting to agree on spending cuts.
The Italian government fired back at Standard & Poor’s, saying its evaluation “appears to have been dictated more by newspaper backchat than by the reality on the ground and it appears to have been polluted by political considerations.”
The downgrade was a further setback for the eurozone, which is struggling to contain the fallout from a debt crisis that has already pushed Greece, Ireland and Portugal to seek bailouts and is now threatening Italy and Spain.
“S&P has thrown another spanner in the works of the European sovereign crisis,” said economist Dermot O’Leary at Goodbody Stockbrokers in Dublin.
The decision put pressure on Italy’s bond market, raising the rate differential between Italian and German bonds – a key risk indicator.
Stock investors had already priced it in, however, and shares were relatively unaffected, with the index rising 0.77 percent in afternoon trading.
The ratings agency downgraded Italy’s rating to “A/A-1” from a “A+/A-1+” on Monday, warning about fiscal and political weaknesses for Berlusconi’s government and pointing to “Italy’s weakening economic growth prospects.”
It was the first downgrade for Italy since the start of the eurozone debt crisis, which has spread from Greece, now locked in the latest round of rescue talks, and has forced Italy to introduce urgent budget measures.
The opposition has called repeatedly for Berlusconi to step down to avert a broader economic crisis and increasingly the criticism is coming from big business once allied with his centre-right coalition.
Italy “is a serious country. We’re tired of being an international joke,” Emma Marcegaglia, the leader of the influential big business lobby Confindustria, said in a speech on Tuesday.
“We don’t want to be mocked for things that are not our fault,” she said.
Caught unawares by the downgrade, the government scrambled into action with Finance Minister Giulio Tremonti promising a new 10-year-plan for growth.
“The situation is very complex but precisely because of that we have to give an idea of what this country will do for the next 10 years,” he said.
“We have to do a bit of marketing for Italy” to exit the crisis, he added.
But analysts said Italy’s problems were deeper and more urgent.
“The situation is really dramatic…. There is a lack of confidence,” said Gian Enrico Rusconi, a professor of political science at Turin university.
Business daily Il Sole 24 Ore issued a scathing editorial saying the government was “incapable of governing” and pointing to “the high price of decadence.”
The newspaper also said the government was preparing to revise down its economic growth estimates for 2011 and 2012.
The report said the government was now expecting growth of just 0.7 percent this year compared to its earlier forecast of 1.1 percent.
The leftist daily La Repubblica said Italians were paying “an additional tax” for every day that Berlusconi stayed on as prime minister.
There have been growing signs of infighting in the government in recent weeks and Berlusconi’s legal problems have escalated.
The 74-year-old billionaire who leads a colorful lifestyle and has dominated Italian politics since the early 1990s, is a defendant in three trials for bribery, tax fraud and underage prostitution.
Berlusconi has also been caught up in a wide-ranging sleaze inquiry including damaging phone intercepts in which he is heard calling Italy a “shitty country” and saying that he was prime minister only “in my spare time”.