LONDON, England - January 27, 2012 - Fitch just cut the long-term issuer ratings of 5 EU sovereigns: Belgium: AA+ to AA, Spain: AA- to A, Italy: A+ to A-, Cyprus: BBB to BBB-, and Slovenia: AA- to A.
It affirmed Ireland's BBB+ rating with a negative outlook.
While Fitch says that it supports EU leaders’ actions to address the crisis so far, a lot more has to happen before these countries are out of trouble.
In Fitch's opinion, the eurozone crisis will only be resolved when there is broad economic recovery. It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration.
In particular, Fitch suggested that large-scale purchases of sovereign bonds by domestic banks after the European Central Bank conducted its first LTRO in December have not helped matters.
Rising "home bias" in the allocation of capital, the divergence in monetary and credit conditions across the eurozone, and near-term economic outlooks highlight the greater vulnerability to monetary as well as financing shocks faced by these sovereign governments.
