News Column

Spain Questions Criteria of S&P Debt Downgrade

Oct. 11, 2012

Spanish officials on Thursday criticized ratings agency Standard & Poor's decision to downgrade the country's credit rating to near junk level, calling on it to reconsider.

S&P lowered its rating for government bonds by two notches from BBB+ to BBB- with a negative outlook late Wednesday.

The agency cited Spain's worsening recession, rising unemployment, social unrest, regional tensions and developments in the eurozone.

Fernando Jimenez Latorre, a secretary of state at the Economy Ministry, said the government did not agree with some of the criteria that S&P based its assessment on.

He denied that disagreements over budget questions and upcoming regional elections were increasing tensions between the central and regional governments.

"The government has an absolute will to continue carrying out reforms" and to cut down the budget deficit, Jimenez said, expressing confidence that S&P would "reconsider" its assessment as the targets were gradually being reached.

Deputy Prime Minister Soraya Saenz de Santamaria said the S&P report did not reflect market perception of the Spanish economy and that it ignored measures taken by the government in July.

The yield for Spanish 10-year bonds rose slightly by the early afternoon. Ibex 35, the main index of the Madrid stock exchange, went down by 0.3 per cent.

Foreign Minister Jose Manuel Garcia-Margallo blamed Spain's high borrowing costs on a growing separatist movement in the north-eastern region of Catalonia, saying it gave the country a bad image.

Spain is trying to trim its budget deficit from 9.4 per cent of gross domestic product in 2011 to 6.3 per cent this year. The economy is expected to shrink by about 1.5 per cent in 2012, while unemployment has soared to nearly 25 per cent.

The eurozone has pledged up to 100 billion euros (130 billion dollars) for Spain's troubled banks.

Jimenez declined to say whether Madrid also intended to seek a eurozone rescue triggering bond-buying by the European Central Bank.

The government was unlikely to leap into a support programme without first establishing the pros and cons, the macroeconomic research company Capital Economics said.

Madrid could also be anxious to put off any bailout until after regional elections in Catalonia and the Basque region on October 21, Capital Economics added.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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