Moody's has cut Italy's credit rating by a notch over concerns about plans for larger deficits and the high public debt load as the country's populist government clashes with Brussels over its budget.
At the heart of the concerns is Italy's public debt, which amounts to 2.3 trillion euros, or 131 percent of Gross Domestic Product (GDP), the highest rate in the eurozone after Greece.
Brussels has demanded Italy cut spending and reduce its public deficit in order to pare down its debt pile.
But the country's populist coalition government has done the opposite -- offering a draft budget that boosted overall spending.
The downgrade from Moody's -- from Baa2 to Baa3 with a stable outlook -- is the latest move by international financial watchdogs sounding the alarm over Italy's economic health.
The decision cited "material weakening in Italy's fiscal strength, with the government targeting higher budget deficits for the coming years," as well as debt holding near the current 130 percent of GDP "rather than start trending down as previously expected".
And Moody's said "stalling of plans for structural economic and fiscal reforms" also had negative implications for the country's growth outlook and debt.
Italy's deficit is now projected at 2.4 percent of GDP, far higher than the 0.8 percent estimate given by the earlier centre-right government.