Debt: Spain Downgraded



Banks Face Downgrades

Banks Face Downgrades

The ratings agency Standard & Poor’s has cut the credit rating for Spain from AA to AA- due to weak growth and a large amount of debt in the country’s private sector. In addition, the high unemployment in the country was cited as a “drag” on the economy.

G20 Ministers To Meet

The Fitch agency cut Spain’s rating last week. The cuts in rating can increase the cost for the country to borrow. G20 ministers are meeting today to discuss the eurozone crisis. Yesterday, Fitch downgraded UK banks Lloyds and RBS and also Switzerland’s UBS as well.

“Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” said S&P in a statement.

S&P also warned that Spain might get a further downgrade if their economy gets worse, though it did not believe the system would weaken any further. Part of the downgrade was due to the “incomplete state” of reform in their labour force.

Fall In Euro

As a result of this news, the euro dropped in Asian trading though it has still had its largest weekly rally since January of this year. It lost a third of a cent, trading at $1.3741. In addition, Fitch cut credit ratings or planned them for other major European banks, having cut ratings levels for UBS, Lloyd’s Banking Group, Royal Bank of Scotland. Banks placed on watch were Barclays, BNP, Paribas, Credit Suisse, Deutsche Bank and Societe Generale.

The credit ratings agency Fitch increased concerns about the sovereign debt crisis as it downgraded both the credit rating of Spain and of Italy, due to the problems in the eurozone as a bloc.

Concerns about the eurozone crisis include possible collapse of the euro as Greece is kept in the EU despite a possible default on its debts. It has agreed a deal with the Troika, but remains dependent on the ratification of funds from the 17 members of the eurozone, of which Slovakia is still making a decision on the subject.

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