Moody's (MCO) Downgrades Italian Banks

A total of 26 banks in Italy were downgraded by Moody's (NYSE:MCO) today, prompting outrage from the Italian banking association, saying the actions from the rating agency were irresponsible and unjustified.

After the downgrades, when measured against similar countries in the European Union, Italian banks are now among the lowest in rank.

This of course makes it even more difficult for the banks, which will now face higher financing costs, as well as making funding in general harder to come by because of the ongoing sovereign debt crisis in the region.

UniCredit and IntesaSanpaolo, the two largest banks in Italy are expected to be okay, but smaller banks like Banca Monte dei Paschi di Siena, which was cut to just above junk status, will struggle in funding and higher costs.

For now, the short-term requirements of the Italian banks were met via 3-year loans from the ECB. Even so, over the long term there is strong concern and fears over the Italian banks will be able to be funded in light of the sovereign debt crisis, which continues on as governments have little will to cut back on spending and shrink the debt.

Italy alone has a gigantic 1.9 billion euro debt, putting it in danger of collapsing from the crisis. For the local banks, it will make it much harder to acquire funding.

To make matters worse, the banking problems in Spain are escalating, as is political volatility in Greek, where citizens refuse to accept the government - which made unsustainable promises - must cut back on spending if the country is to financially survive.

This is of course the entire story of the EU, which has long ago abandoned free markets and limited government to socialist and fascist practices which are destroying them as a parasite does any host.