Silvio Berlusconi's governing coalition is struggling to stem a debt crisis threatening the entire eurozone

Standard & Poor's has downgraded Italy's sovereign debt rating, citing economic, fiscal and political weaknesses in the eurozone's third-largest economy. 

The rating agency said on Monday that it had downgraded Italian debt to "A/A-1" from a "A+/A-1+" grade because of "Italy's weakening economic growth prospects." 

It said Italy's weak governing coalition would "limit the government's ability to respond decisively" to events.

"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P said in a statement. 

Low labour participation rates, an inefficient public sector and modest foreign investment flows were cited as key drags on growth.

"In our view, the authorities remain reluctant to tackle these issues," the agency said. 

S&P's rival rating agency Moody's has already indicated it is weighing its rating for Italy, which is currently at Aa2, two notches below Moody's top triple-A rating.

Italy has tried to reassure investors by announcing a new austerity package which should see the country balance its budget by 2013.

Source: AFP