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Following more uncertainty in Italy since the recent election Moody's Investors Service late Friday placed Italy's debt rating on review for a downgrade. Italy's League calls for anti Euro Paola Savona to be finance minister underscoring "significant risk of a material weakening" in Italian fiscal strength.

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Prior to the review Moody's rates Italian debt Baa2, two notches above "junk" status.

The Moody's action comes after Italy's new coalition between the 5 Star Movement and the League was granted authority to form a coalition government by President Mattarella. Moody's warns on plans of the new anti-establishment coalition government with players like Paola Savona as Finance Minister highlight.  With 5-Star agreeing Savona is now favored to ge the job. He has in the past called for the Italian government to plan for a Euro exit.

"Far from offering the prospect of further fiscal consolidation, the ’contract’ for government signed by the two parties includes potentially costly tax and spending measures, without any clear proposals on how to fund those," Moody’s said.

With political newbie Giuseppe Conte (pictured above) set to become Italy's next prime minister the concerns are also for a continual balancing act to hold power, Italy could also see some of its reform efforts stall and past reforms could be reversed Moody's said. The review allows Moody's to seek more clarity on the new government's plans, which include calls for a flat tax and universal income.

The parties have vowed to challenge the EU's budget rules and slash taxes, while increasing fiscal spending. Moody's rates Italian debt Baa2, two notches above "junk" status. 

Source: Bloomberg

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