Alessia Pierdomenico/Bloomberg

Half-price sale at a store in Milan on Jan. 19, 2012.

Half-price sale at a store in Milan on Jan. 19, 2012. Photographer: Alessia Pierdomenico/Bloomberg

Jan. 27 (Bloomberg) -- Spain, Italy, Belgium, Cyprus and Slovenia had their debt ratings cut by Fitch Ratings, while Ireland had its ratings affirmed. Julie Hyman reports on Bloomberg Television's "Money Moves." (Source: Bloomberg)

Denis Doyle/Bloomberg

At the Principe Pio metro station in Madrid on Sept. 23, 2011.

At the Principe Pio metro station in Madrid on Sept. 23, 2011. Photographer: Denis Doyle/Bloomberg

The credit ratings of Italy, Spain and three other euro-area countries were cut by Fitch Ratings, which said the five nations lack financing flexibility in the face of the regional debt crisis.

Italy, the euro area’s third-largest economy, was cut two levels to A- from A+. The rating on Spain was also lowered two notches, to A from AA-. Ratings on Belgium, Slovenia and Cyprus were also reduced, while Ireland’s rating was maintained.

The downgrades, flagged a month ago by Fitch, come as Greece negotiates with creditors on how to avoid a default and other euro nations struggle to bolster the region’s defenses against contagion should those talks fail. While sovereign-bond yields have fallen in Italy, Spain in recent weeks as the European Central Bank added liquidity, the countries downgraded yesterday still lack financial flexibility, Fitch said.

“The divergence in monetary and credit conditions across the euro zone and near-term economic outlook highlight the greater vulnerability” these nations face in the event of financing shocks, Fitch said. “These sovereigns do not, in Fitch’s view, accrue the full benefits of the euro’s reserve- currency status.”

Belgium’s rating was cut to AA from AA+, while that of Cyprus was pared to BBB- from BBB. Slovenia was downgraded to A from AA-. Ireland’s long-term rating was maintained at BBB+.

All the countries were removed from “ratings watch negative,” though they retain a “negative outlook,” which implies the possibility of a downgrade within two years, according to Fitch.

U.S. Treasury Secretary Timothy Geithner warned European leaders in Davos, Switzerland, yesterday that the U.S. isn’t willing to provide more support for the region unless its own governments act first.

“The only way Europe’s going to be successful in holding this together, making monetary union work, is to build a stronger firewall,” Geithner said at the annual meeting. “That’s going to require a bigger commitment of resources.”

European leaders gather in Brussels on Jan. 30 to discuss Greece, regional support mechanisms and how to spur growth.

Fitch placed Spain, Italy, Ireland, Cyprus, Belgium and Slovenia on review on Dec. 16 for possible downgrades, citing Europe’s failure to find a “comprehensive solution” to the region’s crisis. Fitch lowered the outlook on France’s AAA rating at the same time, though the company said in January that France’s rating probably wouldn’t be cut this year.

“This was in the pipeline,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “The important thing is that the ratings of Italy and Spain remain on par or above S&P’s, so this is catch-up. It’s definitely a wakeup call for European leaders ahead of the summit.”

Italy’s credit rating was cut two levels to BBB+ last week by Standard & Poor’s, which also downgraded eight other euro- region nations including France and Austria, citing European leaders’ inability to contain the debt crisis.

The fallout in financial markets to S&P’s action was muted. Spain on Jan. 17 paid an average 2.049 percent to sell 12-month debt, compared with 4.05 percent on Dec. 13. The previous day, France auctioned 1.895 billion euros ($2.5 billion) of one-year notes at a yield of 0.406 percent, down from 0.454 percent on Jan. 9.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

(Blomberg)