Rating agency Standard & Poor's slashed the creditworthiness of Spain's debt late Wednesday, dropping its rating for government bonds by two notches from BBB+ to BBB- with a negative outlook suggesting the likelihood of future downgrades.
The new rating for Spain's debt is one step above junk, as the New York-based Standard & Poor cited mounting economic and political risks.
The lower rating could further increase Madrid's already high cost of borrowing.
The worsening recession in the eurozone's fourth-largest economy reduces the government's negotiating power. Rising unemployment and wage-cutting will increase social discord and heighten tensions between the central government and the regions, S&P said.
The rating agency said developments in the eurozone share in the responsibility for the drop in the creditworthiness. Doubt over Spain's preparedness to mutualize Spain's bank debt will damage the credit outlook, the agency said. A lack of direction in the policies of the eurozone undermines the outlook for the rating.
Spain has been receiving help for its banks from the eurozone. The government of Prime Minister Mariano Rojoy has not yet requested help from the European rescue fund in the the country's financial crisis. Authors: Juergen Sabel, Ralf Witzler
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