As Italy struggles to form a government, Moody's threatens downgrade

Italy’s prime minister-designate laboured to finalise his cabinet team on Friday, as markets tumbled and ratings agency Moody’s threatened a sovereign debt downgrade on fears the incoming government will embark on a spending spree.

Giuseppe Conte, a political novice with no managerial or administrative experience, was given a mandate on Wednesday to form a government made up of the anti-establishment 5-Star Movement and the far right League, following inconclusive elections in March.

The two parties have agreed a programme that includes slashing taxes and ramping up spending, which prompted Moody’s late on Friday to place Italy’s ‘Baa2’ debt rating - two notches above junk status - under review for a possible downgrade.

The rating agency’s move may exacerbate tensions on markets, which have already slid on fears that the incoming eurosceptic government will undermine fragile state finances.