Spain's problems are not over yet. After the downgrade decided in recent weeks by Egan-Jones, who had cut Spain's rating from "B" to "Ccc+", Moody's ax also fell on Madrid. The rating agency cut the Spanish rating from "A3" to "Baa3", with the possibility of further cuts at the end of the review which should be completed "within a maximum period of three months".
As stated in the agency's note, among the key factors that led to the downgrade is the decision to ask for loans of 100 billion euros to recapitalize the banks, which "will further increase the country's debt, which has already grown drastically" during the crisis. Moody's expects the debt-to-gross domestic product ratio to grow to around 90% this year and continue to rise "through the middle of the decade."
"Stabilizing the debt-to-GDP ratio will be a key issue for the Spanish authorities, requiring years of fiscal consolidation", reads the note from Moody's, which underlines that "as a consequence, Spain's fiscal and debt position is no longer in in line with an assessment in territory A”.
Among the other factors underlying Moody's decision are also cited "very limited access to financial markets" and "the continued weakness of the Spanish economy", which increases the financial weakness of the government and increases its vulnerability.
According to Moody's "this situation is unsustainable" and “absent positive developments that boost investor confidence – for example a recovery in growth or rapid progress in meeting fiscal consolidation targets, which do not appear likely in the current environment – the government is likely to be limited in its ability to refinance the debt that matures”.
