Spain’s troubles grew today as Standard & Poor’s cut its rating on the country’s debt by two levels, to triple B minus, right on the verge of junk status.
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Mounting political and financial pressures on the country have created a negative outlook as it struggles to hold off recession and faces increased tensions in front of local elections.
Although Eurozone governments have agreed in general to provide bailout funding, details of the programs are still being hammered out. A condition of receiving aid is that Spain has to ask for it.
Political pressures against the austerity mandates that would accompany such aid have caused
Spain’s Prime Minister Mariano Rajoy to do everything possible to avoid requesting a bailout.
Standard & Poor’s threatened to lower the rating further if political pressures weakened current financial reform measures, if support from the Eurozone wanes, or if the country’s debt levels increase.
Moody’s Investors Services will release a report by the end of October that may result in a downgrade from its current level of Baa3, also one grade above junk status. Fitch currently rates Spain’s debt two notches above junk at triple B.
Investors have been concerned that the Spanish government may wait too late to request aid, almost ensuring that the country’s creditworthiness
will fall further. If that happens, the country could lose access to the credit markets and be forced to turn to the European Central Bank for help.