Moody's slashes Italy credit rating to Aa2

Italy has moved towards the centre of the euro zone crisis as it struggles to balance its budget while receiving help from the European Central Bank to support its government bonds.

But Italy's credit rating could come under further downward pressure if the euro zone sovereign debt crisis is not resolved and access to long-term funding is diminished.

Moody’s downgrade follows Standard and Poor's announcement to cut its rating on Italy to A/A-1 from A+/A-1+ last month.

Greece remains the epicentre of the crisis and is perilously close to default as European policymakers struggle to agree on a strong enough bailout fund.

The crisis has sent Italy's borrowing costs soaring and pushed it further up the list of euro zone problem countries, with the risk premium paid on its bonds compared with benchmark German Bunds now higher than the equivalent Spanish spread.

The yield spread for Italian government bonds has widened to 3.77 percent over German Bunds, while Spain's spread over German debt is 2.22 percent, according to Thomson Reuters data.