Moody's cuts Italy credit rating by three notches (Reuters)

NEW YORK/ROME (Reuters) – Moody's Investors Service cut Italy's bond ratings by three notches on Tuesday, saying it saw a "material increase" in funding risks for euro zone countries with high levels of debt.

Moody's downgraded Italy's ratings to A2 from Aa2, a lower rating than that of Estonia, and kept a negative outlook on the rating, a sign that further downgrades are possible within the next few years.

The move comes after Standard and Poor's cut its rating on Italy to A/A-1 from A+/A-1+ on September 19 and underlines growing investor uncertainty about the euro zone's third largest economy, which is now firmly at the center of the debt crisis.

"The negative outlook reflects ongoing economic and financial risks in Italy and in the euro area," Moody's said in a statement.

"The uncertain market environment and the risk of further deterioration in investor sentiment could constrain the country's access to the public debt markets," it said.

Moody's also said that Italy's rating could "transition to substantially lower rating levels" if there were long-term uncertainty over the availability of external sources of liquidity support.

Italy's mix of chronically low growth, a huge public debt amounting to 120 percent of gross domestic product and a struggling government coalition has caused mounting alarm in financial markets.

The Moody's decision came as little surprise after the agency said on September 17 that it would finish a review for possible downgrade of its rating on Italy within a month.

"It's not that it was unexpected, but it doesn't help the situation at all," said Robbert Van Batenburg, Head of Equity Research, at Louis Capital in New York.

"They have already traded as if there was somewhat of a downgrade in the works, so it will probably force Italian policymakers to embark on more austerity programs. It will put another fiscal straitjacket on them," he said.

Moody's said the likelihood of a default by Italy was "remote," but the overall shift in sentiment on the euro area funding market implied a greater vulnerability to a loss of market access at affordable interest rates.

Italy's borrowing costs have soared over the past three months and have only been kept under control by the European Central Bank's purchase of its government bonds on secondary markets.

An auction of long-term bonds last month saw yields on 10 year BTPs rise to 5.86 percent, their highest level since the introduction of the euro more than a decade ago.

The center-right government of Prime Minister Silvio Berlusconi has been under heavy pressure over its handling of the escalating crisis and recently cut its growth forecasts through 2013.

It is now expecting the economy to expand by just 0.6 percent next year, down from a previous projection of 1.3 percent.

The government last month pushed through a 60 billion euro austerity package -- bringing forward by one year to 2013 a goal to balance its budget -- in return for support for its battered government bonds from the ECB.

(Reporting by Walter Brandimarte and Daniel Bases In New York, Catherine Hornby and James Mackenzie in Rome; Editing by Gary Crosse)

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9/11 lessons not learned: three failed reforms (The Christian Science Monitor)

Washington – Created by Congress in late 2002, the 9/11 commission was mandated to prepare a full and complete account of the circumstances surrounding the September 11, 2001, terrorist attacks and to provide recommendations designed to guard against future attacks.

The resulting 9/11 commission report produced a rarity in public life – a government report that's also a bestseller. More than 6 million people downloaded the final report, and another 1.5 million purchased W. W. Norton’s authorized edition, reissued Aug. 8.

The events of 9/11, along with strong pressure from families of the victims, gave the 9/11 commission’s final report, released on July 22, 2004, powerful momentum. Despite a highly polarized campaign cycle, the 9/11 commission’s recommendations were endorsed by both leading presidential candidates and most members of Congress. Most of its 41 recommendations became law or were implemented by executive order.

IN PICTURES: Revisiting ground zero

But now, 10 years after the attacks, significant gaps in carrying out the recommendations remain. Here are three reforms that, though widely supported, have languished in Congress:

Homeland Security too unwieldyThe 9/11 commissioners called on Congress to create a single, principal point of oversight for homeland security to avoid a massive, often duplicative reporting burden. Today, 108 committees oversee homeland security – up from 88 when the 9/11 commission declared the system “dysfunctional.”

“Few things are more difficult to change in Washington than congressional committee jurisdiction and prerogatives,” the report concluded. “The American people may have to insist that these changes occur, or they may well not happen.” Such has been the case.

Since January, the Department of Homeland Security (DHS) has provided more than 1,800 briefings to congressional committees and subcommittees and testified at 120 hearings. From 2008 to 2010, DHS witnesses prepared 4,072 briefings and testified at 304 hearings.

“It’s the one 9/11 commission recommendation there has been no action on,” Homeland Security Secretary Janet Napolitano said at a Monitor breakfast for reporters on Aug. 30. Secretary Napolitano, who has testified before Congress 22 times, said, “And we can’t control the action except to say: Look, if you want to prioritize for us how best we spend our time and resources, Congress looking at itself and the demands it puts on us would be very helpful.”

Special communications for respondersThe failure of police and firefighters to communicate added to the death toll on 9/11, especially among first responders. The 9/11 commission recommended that Congress immediately pass pending legislation to assign radio spectrum for public safety purposes. The legislation is still pending.

In February, President Obama called for $10.7 billion effort to help deploy a national wireless broadband network, including a band of radio spectrum (the D-block) to be set aside for emergency responders. Draft bills are pending in both the House and Senate.

In a recent report card on the 9/11 commission’s recommendations, co-chairs Thomas Kean and Lee Hamilton attributed the delay to “a political fight” over whether the D-block should be allocated directly to public safety or auctioned off to a commercial wireless bidder required to give priority access to public safety during emergencies.

But after the ravages of hurricane Irene, along with the Virginia earthquake and devastating Texas wildfires, public safety groups have stepped up calls for Congress to act.

“As a public safety communications director in coastal Virginia, I can assure you that [the] earthquake and hurricane provide too many real-life examples of why public safety needs this dedicated, nationwide broadband network, and with all due respect to our colleagues in the commercial sector, why our nation’s day-to-day and critical emergency communications cannot rely on the commercial network infrastructure,” Terry Hall, first vice president of the Association of Public-Safety Communications Officials (APCO) said in a statement on Sept. 1.

Intelligence czar impotentLike many blue-ribbon panels before it, the 9/11 commission proposed integrating the vast US intelligence community. The centerpiece of that reform was to be the creation of a director of national intelligence (DNI), charged with managing the nation’s intelligence program and overseeing the 16 intelligence agencies that produce it. The DNI was to have budget authority, as well as the capacity to hire or fire senior managers and set communitywide standards. Housed in the executive office of the White House with a “relatively small staff,” the DNI would report directly to the president.

After resistance from lawmakers close to the Pentagon, Congress opted to leave the budget for most of the intelligence community in the hands of the secretary of Defense. In effect, Congress created the office, but declined to give it the budget or personnel authority to operate it – a decision that may account for why four DNIs have held the office in only six years.

The last DNI, retired Adm. Dennis Blair, stepped down after unusually public clashes with then-CIA Director Leon Panetta and White House counterterrorism chief John Brennan. The current DNI, former Pentagon intelligence chief Lt. Gen. James Clapper is nearly invisible, but for widely reported gaffes in appearances before congressional panels.

Moreover, the DNI operation evolved into a new bureaucracy of its own, with more than 600 employees. "Creation of the DNI did not consolidate the intelligence community and bring different agencies in it together," writes former senior US intelligence official Paul Pillar in his new book, "Intelligence and US Foreign Policy: Iraq, 9/11, and Misguided Reform." "Instead, it created yet another agency, called the Office of the Director of National Intelligence, to sit precariously on top of the other agencies in the community."

“It still is not clear, however, that the DNI is the driving force for intelligence community integration that we had envisioned,” said Kean and Hamilton in their Tenth Anniversary Report Card for the Bipartisan Policy Group, released in September. At $80 billion, the Intelligence Community’s budget is now more than double what it was at the time of the 9/11 attacks.

“We are also concerned that there have been four DNIs in six years. Short tenures detract from the goals of building strong authority in the office and the confidence essential for the president to rely on the DNI as his chief intelligence advisor,” they added.

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Related Monitor 9/11 video:

newslook

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