NEW YORK | Their outlook remains negative, but there is some brightness in the horizon, the agency reckons. Standard and Poors will not cut Spain’s rating because it believes the country has done its homework, showing a strong commitment to economic and fiscal adjustment. It will continue to receive support from its European partners and the ECB and therefore its debt will remain below 80 percent of GDP beyond 2015.
Spain is under enormous market pressure after asking for up to 100 billion euro ($123 billion) to help recapitalize its struggling banks. However, according to S&P’s report published on Wednesday, those loans will be “mutualized” among euro-area governments, thus reducing the impact.
“Our current rating is premised on the assumption that the government will not provide any additional direct support to the commercial banking sector beyond the maximum 100 billion euros ($123 billion) to be made available initially from the European Financial Stability Facility, and subsequently from the European Stability Mechanism,” S&P said.
The aid for financial institutions is due to come before the end of this year. It will lift Spain’s debt levels by around 10 percentage points, before being funneled to the banks.
Another of S&P’s concerns is the big debt burden of Spain’s 17 regional governments, since “these deviations would increase net general government debt” and affect the country’s rating. The central government has decided to introduce debt ceilings for the 17 semi-autonomous regions.
LAGARDE: “SPAIN HAS DONE AN AWFUL LOT”
Spain’s latest economic policy received the International Monetary Fund’s managing director’s endorsement on Wednesday. Christine Lagarde praised reforms undertaken by Mariano Rajoy’s government on labour market, healthcare and education.
“When we look at what Spain has already done, and is committing to do, there’s not much more that we would be asking from Spain if it was in a program with the IMF (…) They have done an awful lot in the last few months,” Lagarde said to reporters in Washington.
Lagarde insisted that the European Union needs to follow through on proposals for a common euro banking supervision in September to dispel uncertainty over the Spanish bank-bailout program. EU authorities need to be in full “crisis-management mode” in the coming months to calm the markets.