- Spain and Italy are the Too Big To Bailout. Either one can bust the Eurozone. The financial earthquakes are getting bigger and bigger. Make sure you protect yourself by buying physical gold. The world is facing a global economic, financial and monetary crisis! See also: Inside the News: Spain downgrade threat adds to worries.
Moody’s warns Spain facing downgrade risk
Associated Press, http://www.thestar.com/
MADRID—Moody’s warned on Friday that it may downgrade Spain’s credit rating over the coming three months given the country’s weak economic growth prospects as well as ongoing funding pressures. In a statement, the ratings agency said any reduction of the current Aa2 rating would likely be limited to one notch unless an “unexpected development” happens. A one notch reduction would take the rating down to Aa3, still a healthy investment grade.
Separately, Spain announced Friday that the nation’s jobless rate for the second quarter dropped slightly — to 20.9 per cent from 21.3 per cent during the January-March period. It is still the Eurozone’s highest unemployment rate. Most job gains were in the services sector as Spain headed into its heavy summer tourism season, though industry also posted a small uptick. The country shed more jobs in the construction and agriculture sectors.
Moody’s said funding pressures on Spain are likely to increase following last week’s bailout package for Greece, which has set the “precedent” of private sector involvement. Banks are being asked to rollover and swap their Greek debt holdings in an effort to relieve the burden on the country. Moody’s said Greece’s second bailout package “has signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits.”
Spain has struggled with the aftermath of a collapsed real-estate boom, and experts are predicting years of sluggish growth ahead. Though its debt burden is not as high as Greece’s, it does run a fairly sizable budget deficit, which requires funding in the bond markets on a constant basis. Its cost of borrowing has been going up sharply in recent weeks even after last week’s Greek deal, which was also supposed to ease the pressures on much bigger economies such as Spain and Italy.
Spain’s costs — and Italy’s for that matter — rose further in the aftermath of the Moody’s warning. The yield on Spain’s 10-year bonds ratcheted up another 0.10 percentage point in early trading Friday to 6.10 per cent. That means that the difference between Spain’s rate and the benchmark German rate stands at 3.5 percentage points. Though Moody’s said its ratings are not affected by short-term market moves, it added that the risk of “a sustained rise in funding costs nevertheless has to be factored into the agency’s analysis of a country’s prospective debt affordability.”
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