Moody's downgrades Italy

Moody's has slashed Italy's credit rating tonight.

The ratings agency has downgraded the country from AA 2, to A-2 with a negative outlook.

Moody's said the downgrade was prompted by an increase in long-term funding risks for the euro area, due to lost confidence in eurozone government debts.

Speaking tonight, Prime Minister Silvio Berlusconi said the decision had been expected.

The downgrade is likely to be followed by similar cuts in the credit rating of Italy's banks, which would put severe pressure on their ability to borrow.