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Italy: Fitch warns political turmoil could threaten debt rating

last update: September 30, 17:29

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London and New York, 30 Sept. (AKI) - Protracted uncertainly over Italy's financial policies amid the possible collapse of the coalition government could cause a further cut in Italy's sovereign debt rating , Fitch's agency said on Monday.

"Prolonged uncertainty over economic and fiscal policies, reduced confidence that public debt/gross domestic product (GDP) will fall from 2014 and failure to comply with the constitutional requirement of a balanced budget are potential rating triggers for Italy's 'BBB+'/Negative rating," Fitch's stated.

"The potential collapse of Italy's ruling coalition government puts the sovereign's short- and medium-term fiscal policy targets at risk and creates uncertainty at a crucial period when the 2014 budget should be finalised," said the rating agency.

Italy's prime minister Enrico Letta said on Monday he would call a parliamentary confidence vote on Thursday after his centre-left Democratic Party's conservative coalition partner the People of Freedom (PdL) announced at the weekend it was pulling its five ministers from the fragile government.

The move paved the way for a political crisis in the recession-mired country.

PdL leader and three-times premier Silvio Berlusconi said he was withdrawing his party's support from the government in protest at a planned increase in VAT sales tax due on Tuesday, part of a wider government policy to plug Italy's more than two trillion euro debt load.

Berlusconi had already threatened to withdraw his ministers if he is expelled from the Senate for tax fraud next month under a 2012 anti-graft law.

Last week, PdL lawmakers threatened a mass walkout from the parliament if Berlusconi is ejected from the Senate following his binding tax fraud conviction last month.

Fitch in March cut Italy's sovereign debt rating to 'BBB+' from 'A-' with a negative outlook after elections in February produced a hung parliament and the prospect of political flux seen by Fitch as 'non-conducive' to the implementation of essential structural reforms.

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