S&P downgrades Spain on weak growth outlook

 

Madrid resident: "Things are bad... prices down, sackings"

Standard & Poor's (S&P) has cut Spain's long-term credit rating by one notch, from AA to AA-, because of weak growth and high levels of private sector debt.

The ratings agency added that the country's high unemployment would remain a drag on the economy.

Last week, the Fitch agency also cut Spain's rating, a process that can raise a country's borrowing costs.

S&P's move comes as G20 finance ministers are due to meet on Friday to discuss the eurozone crisis.

On Thursday, Fitch downgraded the creditworthiness of UK banks Lloyds and Royal Bank of Scotland (RBS), and also Switzerland's UBS.

'Weaken further'

Explaining its decision to downgrade Spain, S&P said: "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."

It noted the "incomplete state" of labour market reform, and added: "The financial profile of the Spanish banking system will, in our opinion, weaken further."

People prepare for the protest march in Madrid

S&P also warned of a further ratings cut if Spain's economy worsens.

Its move comes as activists opposed to the Spanish government's continuing austerity measures, the so-called "indignants", are due to hold a protest march in Madrid on Saturday.

In addition to downgrading UBS, Lloyds and RBS, Fitch said it had put 12 other banks on notice that they may receive the same treatment.

The other lenders it has warned include Germany's Deutsche Bank and US group Goldman Sachs.

Fitch said it noted "increased challenges" facing the financial markets as the eurozone debt crisis and government spending cuts continue to affect banks.

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Germany lives off its exports. If people don't have any money who is going to buy our stuff?”

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Last week, Fitch fuelled concerns about the debt crisis when it downgraded Spain and Italy, citing the "intensification" of the eurozone's economic and financial problems.

Political moves

The euro fell to $1.3723 immediately following S&P's announcement, before recovering to $1.3774 in early Friday trading.

Analysts said this was due to optimism that the G20 meeting of finance ministers may announce new agreements on tackling the crisis in the eurozone.

However, other commentators say any firm decisions on the eurozone will not likely be announced until the meeting of EU leaders on 23 October.

One expected agreement will be increasing the funding and powers of the European Financial Stability Facility, the fund set up to help national governments in financial difficulty.

Measures to protect European banks with high levels of exposure to eurozone national debt are also expected to be decided.

 

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  • rate this
    +2

    Comment number 251.

    Cosmologic: please, send facts, not nonsense. Greece lied about their debt in order to get in the EU, all other countries didn't or at least oterh countries weren't caught on the lie. Send facts (links to news in BBC News for instance) or don't talk nonsense.

    Please, lets be serious.

  • rate this
    +3

    Comment number 250.

    Why as people are we putting up with being ripped off to feed the ultra rich with even more monies and power?
    If every governbent just said no what could they do?

  • rate this
    +6

    Comment number 249.

    These are the same ratings agencies that gave AAA ratings to sub-prime mortgages (sold as Collateralized Debt Obligations) even as Lehman's was about to collapse.

    They helped fuel the demand and ultimately the loses of the institutions that bought them (including retirement funds).

    The BBC should explain their track record so that their "opinions" are put into perspective.

  • rate this
    -1

    Comment number 248.

    The Eurozone has been a disaster for many of its members creating economic disparity that to save the lesser states pulls down the entire structure. Countries like Spain and Greece were better off on their own currencies. People are also fed up being manipulated by credit rating agencies like S & P. Who the hell are they to make these judgements? It's slavery to capitalism & banks at its worst.

  • rate this
    0

    Comment number 247.

    236.echebaj
    To join the EU certain standards must be met regarding: deficit, inflation, etc. Except Greece, whose government lied, all other countries met them. Southern European countries (again, except Greece) were meeting the requirements. Therefore, nobody joining the EU are "poor" or "overpriced" (inflation requirement)....
    -#-
    Not so!
    ALL 5 countries in trouble lied - NOT only Greece.

  • rate this
    0

    Comment number 246.

    245.L A Odicean

    come on please tell us

  • rate this
    0

    Comment number 245.

    There is only one answer, one simple action (simple but not immediately obvious) that can be taken by Governments in conjunction with major financial institutions to ward off the looming financial disaster which is facing all of us in Europe, whether we are in the Euro or out of it. The answer to all our problems concerning debt and banks unwilling or unable to lend, both here and in the US, is

  • rate this
    0

    Comment number 244.

    @240.SeeDubya

    To add to this, I often holiday in Bulgaria, and the undercurrent there has for some while been the fear that once they join the € house and food prices will quickly reflect the prices in the rest of Europe, but their salaries will not increase correspondingly. The troubles now have relieved the Bulgarians, who are now able to step back a little (they haven't been downgraded).

  • rate this
    +11

    Comment number 243.

    I thought the problem for Spain was a property bubble / crash not a public spending one, i.e same as Ireland.

    You can't blame the populations for that, property bubbles are caused by financial institutions who lend, invest and place value on the property / land.

    As others have said the real problem here is globalisation and the free movement of capital across borders, all masked by derivatives

  • rate this
    0

    Comment number 242.

    Switzerland needed a reduced credit rating. Their Banks charge too much interest. The U.S. Federal Reserve Board must increase interest rates for American Banks to improve credit ratings and solvency.

  • rate this
    +3

    Comment number 241.

    All this 'downgrading' by these random agencies (no doubt run by the same people who lend govts money in the first place) are actually deepening the problem, not helping it. Every time they downgrade a country the country takes a dive. I'd love to know how the agencies are affiliated with the banks. Hand in hand no doubt at all.

  • rate this
    -3

    Comment number 240.

    I holiday in Spain at least once a year. It is obvious to anyone that has been going there a long time that the Spanish economy is facing disaster. Prices are at least as dear as in the UK and yet we have been one of the richest oil producing nations in the world for thirty years and have average wages that reflect that fact. It amazes me that Spaniards can afford to eat let alone buy a house.

  • rate this
    0

    Comment number 239.

    80.gallego
    As someone living in Spain it is hard to be objective over the reasoning behind these downgrades. I can tell you that things here are worse than desperate....
    -#-
    You are answering your own question.
    What on earth did you expect?
    It's very sad for the people, but these markings are not personal and relate to financial health which IS dire - as you say yourself
    Alas that's the reality.

  • rate this
    +6

    Comment number 238.

    168.ExpatKS
    Maybe you haven't noticed the british pound collapsed from 1.5€ to 1.15€ in a few years. Inflation in the eurozone is lower than in the UK. It's your money that is worth less....

  • rate this
    0

    Comment number 237.

    234.
    ProDAN

    Do not kick them when they are down, kick them out ! A lot of good money is just being thrown after bad and that can only harm all
    economies

  • rate this
    -2

    Comment number 236.

    To join the EU certain standards must be met regarding: deficit, inflation, etc. Except Greece, whose government lied, all other countries met them. Southern European countries (again, except Greece) were meeting the requirements. Therefore, nobody joining the EU are "poor" or "overpriced" (inflation requirement).

    In 2002 Germany was in a crisis and not meeting those req. They still survive.

  • rate this
    +2

    Comment number 235.

    Who are these faceless people who would downgrade a proud nation like Spain. All this will do is cause even more pain and suffering. The conditions across Europe are getting ripe for a revolution. The far-right are on the move everywhere and there is nothing we can do about it.

  • rate this
    +1

    Comment number 234.

    Why are all these credit agencies downgrading everybody, when we are in a GLOBAL FINANCIAL CRISIS? Everybody is struggling on debt and economies are failing and some growing extremely slow. Lets just kick them whilst they are down and dampen and ruin their hopes of getting back level shall we..Great way to solve the financial problems!

  • rate this
    +1

    Comment number 233.

    this is all meaningless. all it adds up to is that the spanish now have to pay higher rates on their loans so that makes them even more in debt. There is something blindingly obvoius here I think. And this goes for the rest of europe

  • rate this
    -1

    Comment number 232.

    Does anyone dispute thatthe rules governing membership of the eorozone have been wilfully ignored by those who should have enforced them? Can anyone dispute the rules were not enforced due to political dogma?

 

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