Thursday, June 7, 2012

Like A Broken Record: Spain Downgraded Again, Near Junk

This looks like broken record, well, that's because they have so many countries in bad shape over there. Fitch downgraded Spain's sovereign debt rating not by one but by three notches today, and warned that the nation is at risk of being downgraded into junk bond status.

The nation's debt rating was cut from "A" all the way to "BBB," the lowest rating that is considered investment grade, with a negative outlook.

"Fitch pointed to the estimated cost of a Spanish bank bailout, which it said is likely to cost between €60 billion to €100 billion, as well as a prolonged recession that Fitch now expects to run throughout 2013.
"Spain's high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece," the agency said in the note. "The much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support."

The firm said that part of the reason for the downgrade was "policy missteps at the European level that in Fitch's opinion have aggravated the economic and financial challenges facing Spain.
"The absence of a credible vision of a reformed [eurozone] and financial 'firewall' has rendered Spain and other so-called peripheral nations vulnerable to capital flight and undercut their access to affordable fiscal funding," said the report.

Fitch said Spain is helped by a relatively high value-added and diverse economy, one that is competitive enough that it might have a trade surplus this year". (CNN)

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