Spain’s credit rating downgraded to near junk status by S&P

Thursday, October 11, 2012
By Paul Martin

Rating agency Standard & Poor’s has downgraded Spain’s credit rating by two notches, warning that the deepening economic recession is limiting the government’s options.

By Rebecca Clancy
10 Oct 2012

S&P warned that rising unemployment and harsh austerity measures are likely to intensify social unrest and cause further friction between Spain’s central and regional governments.

“The downgrade reflects our view of mounting risks to Spain’s public finances, due to rising economic and political pressures,” said the rating agency in a statement.

“In our view, the capacity of Spain’s political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining, and therefore, in accordance with our rating methodology (see “Sovereign Government Rating Methodology And Assumptions,” published June 30, 2011), we have lowered the rating by two notches.”

The downgrade to BBB- from BBB+ late on Wednesday leaves Spain one notch above “junk” status. S&P also attached a “negative outlook”, which warns of a possible downgrade in the medium term.

S&P said it would downgrade the country’s debt status further if political support for Madrid’s reform agenda weakens, if eurozone support fails to prevent Spain’s borrowing costs hit unsustainable levels or if debt tops 100pc of economic output or debt payments surpass 10pc of general government revenues.

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