LONDON, June 6 (Reuters) - Italy's 2020 budget will be key for the direction of country's creditworthiness, rating agency Moody's said on Thursday, and slammed proposals for so-called 'mini-BOTs', warning they could be a first step to the country leaving the euro.
"We consider the 2020 budget to be an important milestone in assessing the direction of the country's creditworthiness," Moody's said in a report after the European Commision this week recommended initiating its Excessive Deficit Procedure (EDP) on Italy.
Under its baseline scenario, it said it expects public debt to continue to rise in the coming years, while the absence to date of a credible strategy continues to expose Italy to adverse shifts in investor sentiment.
"If severe, adverse market reaction could further weaken growth, pressure the banking system and erode fiscal strength."
On the mini-BOTs proposal, which would see the issuance of small-denomination government bonds as a means of reducing state arrears to suppliers, Moody's was scathing.
"While we consider the issuance of such securities to be very unlikely, the fact that the proposal has resurfaced at all is credit negative," it said.
"We would consider the issuance of such mini-BOTs as a first step towards establishing a parallel currency and preparing for Italy to exit the euro area." (Reporting by Marc Jones; editing by Thyagaraju Adinarayan)