Standard & Poor: Spain's debt rating one level above junk
The rating cut was unexpected and is negative for Spain
Standard & Poor has cut Spain's debt rating to one level above junk. Spain was lowered two levels to BBB- from BBB+, S&P said in a statement. S&P assigned a negative outlook to the nation's long-term rating and lowered the short-term sovereign level to A-3 from A-2.
In response, investors are shunning Spanish securities as Prime Minister Mariano Rajoy weighs a second bailout amid a deepening recession. The prime minister has held off on a decision about whether to request European Central Bank and EU bond buying to lower borrowing costs. He's called for more details on what would be demanded of Spain in return for the support.
The downgrade comes after Spain announced a fifth austerity package in less than a year. Spanish credit concerns have grown since the government requested as much as $129 billion in U.S. dollars in European Union aid last June to shore up its lenders and amid signals that the deficit target is in jeopardy.
S&P said the government's action will probably be constrained by "a policy-setting framework among the euro-zone governments that still lacks predictability."
The European Stability Mechanism's involvement in bank recapitalizations put into question the mutualization of loans to Spanish banks among euro-region nations. That possibility was a key factor in S&P's decision to affirm ratings on Spain on August 1 as it would enable Spanish net general government debt to remain under 80 percent of gross domestic product beyond 2015, it said.
The yield on Spain's 10-year benchmark bond jumped as much as 12 basis points to 5.93 percent today before dropping to 5.80 percent in Madrid, compared with a record of 7.75 percent on July 25, a day after Spain signed a memorandum of understanding awarding it a credit line for its banks.
AAA-rated countries Germany, the Netherlands and Finland had been issued a joint statement on September 25 saying the ESM should only be used to recapitalize banks as a last resort.
Spanish Economy Minister Luis de Guindos after meeting with peers in Luxembourg told journalists that the issue of those legacy assets hadn't been discussed.
German Finance Minister Wolfgang Schaeuble denounced the debate a "phantom" and said a transfer of legacy bailouts isn't compatible with firewall-fund agreements.
Deputy Economy Minister Fernando Jimenez Latorre told reporters that he expects an intervention on secondary markets may take place shortly. Spain still requires information before it can make a decision.
"One can expect that one way or the other, the mechanism of intervention on secondary markets starts to act relatively soon," Latorre said. "If the ECB itself considers there are inefficiencies in the transmission of monetary policy and that there are doubts on the irreversibility of the euro project, it is logical to think that European institutions will take the necessary measures shortly to dissipate those doubts."
© 2014 - Distributed by THE NEWS CONSORTIUM
Pope Francis Prayer Intentions for March 2014
Respect for Women: That all cultures may respect the rights and dignity of women.
Vocations: That many young people may accept the Lordís invitation to consecrate their lives to proclaiming the Gospel.
Rate This Article
Leave a Comment
More Europe News
- Pope Francis: Jesus Became Poor, So that by His Poverty You Might Become Rich
- DEFIANT RUSSIA: Leadership disregarding tough talk from Obama
- Long-lost pirate's treasure could be hidden off Irish coast
- British mom gets second opinion - and finds her unborn baby ALIVE, in spite of doctors
- Calling the Ecclesial Movements: Pope Francis Encourages Focolare, all the Movements, So Do We!
- Oops! Pope Francis accidentally mutters obscenity
- One rape or sexual assault reported by members of the Armed Forces - EVERY WEEK
- Pope Francis Writes to Families Seeking Prayer for the Synod on the Family
- After scandal, overseer gives Legion of Christ clean bill of health
- Fr. Paul Schenck: Finding Living Faith on Catechetical Sunday
- The Movie Yellow: Incest as 'Normal' and Cassavates's Slides Into the World of Woes
- The Chicago School Teachers Strike Reveals the Need For School Choice
- The Sexual Barbarians and the Dissolution of Culture
- The Happy Priest Challenges Us to Ask: Who is Jesus to Me?
- Michael Coren on Canadian Public Schools: Teachers, leave those kids alone
- We Cannot Ignore Our Consciences: Cardinal Dolan On Religious Liberty
- In the Face of Danger, Successor of Peter Travels to Lebanon as a Messenger of Peace
- Reflections on the Dignity and Vocation of Women: Who or What?