Edition 86
www.thecourier.es
Friday, October 12, 2012
BAILOUT PRESSURE MOUNTS ON RAJOY Spain’s credit rating heads for junkyard
SPAIN’S Prime Minister Mariano Rajoy came under increased pressure yesterday (Thursday) to ask for a European Union bailout. The new squeeze came after Standard & Poor's Ratings Services slashed the country's credit rating to leave it teetering just above speculative-grade, or "junk" status. The Wall Street Journal said that S&P's surprise two-notch downgrade represents the latest blow for a government grappling with a contracting economy, a massive banking overhaul, soaring unemployment and a pro-independence push by Catalan nationalists unhappy by the effects of austerity measures on their wealthy north eastern region. The Journal added that a further drop in Spain's rating - also under review for a possible downgrade to junk by Moody's Investors Service later this month would force some Spanish bond investors to sell their holdings and could lead to even higher borrowing costs. Rajoy has said he would consider Spain's funding costs when deciding
whether to ask for a European rescue to help the government finance itself. S&P cut its rating on Spain to BBBminus from BBB-plus and maintained a negative outlook, saying Madrid's hesitation to ask for a bailout is "raising the downside risks to Spain's rating." The remarks put S&P among a chorus of politicians, business people and market observers urging the notoriously cautious Rajoy to act soon. Spain has limited incentives to accept a rescue, as it may require the oversight of international authorities who would lean hard on Madrid to make more painful budget cuts and unpopular austerity reforms. Key regional elections in the Basque Country and Galicia on October 21 are also seen as a political factor delaying a possible bailout request. It also raises the question of whether Spain can limp along with an investment-grade rating and avoid a bailout. The issue is significant for the euro zone's fourth-largest economy, as it has already been on the brink of losing market access several times this year.