Fitch Cuts Italy, Spain's Debt Ratings

International credit rating agency Fitch has downgraded the debt ratings of Spain and Italy amidst intensifying concerns about the debt crisis in the euro zone.

Fitch Ratings reduced Spain's long-term credit rating to AA- from AA+, and Italy's long-term credit rating to AA- from A+, with negative outlook for both countries.

Fitch said the downgrade to Spanish debt reflected "the intensification of the euro area crisis" and "risks to the fiscal consolidation effort" arising from the budgetary performance of some regions.

"As Fitch has previously cautioned, a credible and comprehensive solution to the crisis is politically and technically complex and will take time to put in place and to earn the trust of investors. In the meantime, the crisis has adversely impacted financial stability and growth prospects across the region," it said in a statement, adding

"However, the still sizeable structural budget deficit, high level of net (although not gross) external debt and the fragility of the economic recovery as the process of deleveraging and rebalancing continues render Spain especially vulnerable to such an external shock."

But Fitch also said Spain's sovereign solvency remains secure. "Spain's 'AA-' rating reflects strong fundamentals: a diversified, high-value-added economy and strong governance. The government's policy response has been credible and aggressive."

Fitch's downgrade of Italy comes after a similar action from Moody's which downgraded Italian debt by three notches on Tuesday.

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