There appears to be no end to eurozone woes, with the blocs economic woes beginning to mirror the never-solvable Pakistan-India-Kashmir issue. While the bloc struggles to sustain its existence by bailing out countries and their banking systems, rating agencies continue to spill water over economic managers efforts. Last Friday - ironically Friday the 13th - Moodys cut down Italys credit rating 2 notches to Baa2 from A3. The new rating is just two notches above junk status, putting the countrys borrowing costs under further strain. The ratings agency has attributed the countrys downgrade to increased susceptibility to event risk and to underlying economic weaknesses in the Italian economy. With regard to the former, the ratings agency fears that political events risk will increase as the eurozone crisis persists and vulnerabilities in other economies such as Greece and Spain surface. "Events in Greece have deteriorated materially since the beginning of 2012, and the probability of a Greek exit from the euro-area has materially increased in recent months. Likewise, (there is) an increased likelihood that Spain might require further external support against the backdrop of economic weakness and increased vulnerability to a sudden stop in funding," said the ratings agency about its rating action. Last month, the idea of using the European Financial Stability (EFSF) and European Stability Mechanism (ESM) funds to stabilise sovereign funding markets was floated at the euro summit. However, Moodys is doubtful of the efficacy of this plan. After all, we e talking about the blocs third largest economy. "Given the size of the Italian economy and the size of the governments debt load, there is a limit to the extent to which these support mechanisms can be used to backstop such a large, systemically important sovereign," cautioned Moodys. At the same time, the countrys economic outlook is not something to write home about either. Thanks to fiscal slippages, there are expectations that the countrys GDP growth will shrink by 2 percent in 2012, putting further doubts over the countrys ability to achieve its fiscal targets of a structural budget balance by 2013. Only three days before this rating action, European finance ministers had agreed to bail out Spanish banks to avoid Spain, the fourth-largest economy of the bloc, from needing a full bailout itself. Besides the €30 billion doled out for the banks, the country also got additional concessions in the form of an extension to cut its deficit below 3 percent of GDP by 2014 instead of 2013. Meanwhile, the Greek worries have their own share of lashing the bloc. Overall, the eurozone appears to be struggling through these tough times, using whatever means possible to save ailing countries. Yet, the feat seems to be too large to rectify, especially given the fact that some of the troubled economies like Italy and Spain make up over 20 percent of the blocs GDP. The countries themselves need to realise this and implement some stringent fiscal reforms before its too late. However, slowing growth and anti-austerity protestors make the task even more challenging. Needless to say, the effect of eurozone woes on other regions in the world, and on prices of commodities such as oil and food, is also contributing towards steering the world towards a global recession. These are indeed testing times for the 17-nation bloc and some major changes in its policies, or even the map of the bloc should not come as a huge surprise.
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