This morning, March 10th, Moody's Investor Services has communicated to the market its decision to downgrade the Kingdom of Spain's rating from Aa1 to Aa2 with a negative outlook. The Spanish Treasury was notified of this decision yesterday afternoon on March 9th. 

The drivers underlying Moody's decision are Spain's allegedly weak growth prospects; the risks involving the General Government's budget execution, with particular concerns about the Autonomous Communities; and, more importantly, the public sector's budgetary cost associated with the recapitalisation of the financial sector. 

 

The Spanish authorities' opinion of the arguments put forward by Moody's is that they show excess zeal, based more on opinions than on evidence, when they deem the risks underlying the Spanish economy to deserve not only a downgrade but also a negative outlook. 

 

Setting aside any concrete arguments used by Moody's, the timing of this decision is surprising. In contrast with the importance that Moody's attributes to the budgetary consequences of the banking sector's recapitalisation, it is released a few hours before the Bank of Spain, the Spanish banking supervisor, publishes its official report on the effective capital needs of Spain's credit institutions. Moody's analysts had the opportunity to contrast their analysis with that of the Bank of Spain, since they could have waited until March 15th to publish their decision. 

 

The Kingdom of Spain remains committed to the maximum transparency with the investor community. They believe that investors analyse the Spanish economy beyond the assessments of an individual publication.  They remain at our disposal to explain the Spanish Government's views on the fundamentals of the Spanish economy.