Spain’s debt rating was cut to one level above junk by Standard & Poor’s, which cited euro-region peers’ backtracking on a pledge to severe the link between the sovereign and its banks as it considers a second bailout.
The country was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement yesterday. S&P assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2.
The downgrade comes after Spain announced a fifth austerity package in less than a year and published details about stress tests of its banks. Creditworthiness concerns have grown since the government requested as much as 100 billion euros ($129 billion) in European Union aid in June to shore up its lenders and amid signals that the deficit target is in jeopardy.
S&P said the government’s action will probably be constrained by “a policy-setting framework among the euro-zone governments that still lacks predictability.” Recent statements on the European Stability Mechanism’s involvement in bank recapitalizations put into question the mutualization of loans to Spanish banks among euro-region nations, it said.
That possibility was a key factor in S&P’s decision to affirm ratings on Spain on Aug. 1 as it would enable Spanish net general government debt to remain under 80 percent of gross domestic product beyond 2015, it said.
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