Standard & Poor's Ratings Services said it lowered its long-term sovereign credit rating on the Kingdom of Spain to 'BBB-' from 'BBB+'. At the same time, it lowered the short-term sovereign credit rating to 'A-3' from 'A-2'. The outlook on the long-term rating is negative.
The downgrade reflects S&P's view of mounting risks to Spain's public finances, due to rising economic and political pressures. The central government's policy responses are likely to be constrained by:
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severe and deepening economic recession that could lead to increasing social discontent and rising tensions between Spain's central and regional governments;
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a policy-setting framework among the eurozone governments that in S&P's opinion still lacks predictability. S&P's understanding from recent statements is that the Eurogroup's commitment to break the vicious circle between banks and sovereigns, as announced at a summit on June 29, does not extend to enabling the European Stability Mechanism to recapitalise large ongoing European banks. S&P's previous assumption (which was a key factor in its decision to affirm the ratings on Spain on August 1, 2012) was that official loans to distressed Spanish financial institutions would eventually be mutualised among eurozone governments and thus Spanish net general government debt would remain below 80 per cent of GDP beyond 2015.
Press release
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