4 October 2011 Last updated at 17:02 ET
The Italian government's credit rating has been slashed by Moody's from Aa2 to A2 with a negative outlook.
The ratings agency blamed a "material increase in long-term funding risks for the euro area", due to lost confidence in eurozone government debts.
The news caused an immediate drop in the euro's value.
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.
Source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-15176947
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