Further Eurozone gloom as Moody's cuts Italy's rating three notches

The ratings agency yesterday downgraded the country's bond ratings from Aa2 to A2 with a negative outlook, blaming high debt, a weak global economy and political uncertainties that delay corrective action.

The move to ratchet Italy's rating down three notches came after the Chancellor returned to the Conservative Party conference following emergency talks with EU counterparts in Luxembourg.

Mr Osborne expressed his frustration at the continued failure to reach agreement on a solution to the crisis but said he had emerged from the lengthy talks more confident of progress.

Speaking on his return to Manchester, he told the Sky News Jeff Randall Live show: "I am not pretending that by the end of the day we had a solution to the eurozone crisis, much to my frustration.

"But I think we did take some steps forward. I think everyone now is aware of the gravity of the situation in the eurozone.

"I am confident that we are moving forward and for the UK chancellor, not being in the euro, I am more and more convinced that the biggest single boost you could make to the UK economy this autumn would be a resolution of the eurozone crisis."

Yesterday stock markets plunged, with David Cameron warning that the world economy was at a "moment of danger".

The FTSE 100 Index closed below the 5,000-point mark, down 2.6%, for the first time since July 2010 after a shock profit warning from Germany's Deutsche Bank added to fears of a Greek debt default.

Mr Osborne said eurozone governments had so far failed to show they had the necessary "firepower" by increasing the size of the emergency fund or to show they would adequately shore up the banks.

But a decision also had to be taken quickly and implemented to deal with the Greek situation, he added, "instead of this endless speculation about whether they will change course".

Asked if he was confident that Greece would not go bust, he said: "What I am confident of is that the international community recognises the gravity of the situation and are gripping it.

"These are decisions that require political will and the political will is there."

Moody's action to downgrade Italy's credit rating, which was also attributed to market sentiment turning against the euro, came as France and Belgium fought to prevent the bank Dexia from going under after its share price bombed under the weight of its exposure to Greece's burgeoning debt pile.

The two countries promised to prop up the European lender, whose shares ended yesterday 22.5% down, and reassure clients and creditors that they will not lose their money.

Meanwhile, share prices continued to fall around the globe following Athens' admission on Monday that it will miss its deficit reduction targets, and on concerns about stalling growth.

Mr Cameron told the BBC: "I think it is a moment of danger.

"I think there are some very serious clouds on the horizon, chief amongst them is the problems in the eurozone where the French economy, the German economy have both stalled, and that is a real problem for the British economy."