Bad news never comes alone. After the International Monetary Fund's open challenge to Madrid’s budget and growth perspectives, Standard & Poor's has slashed its rating for public debt by two notches leaving it at one step above the junk level status. It may not unsettle too much the markets, as Moody’s had undertaken some time ago a similar move. But it does further undermine Spanish credibility to withstand the demanding tasks it has to face.
A dismaying growth prospect dashes any hope that fiscal consolidation might meet its targets. In such scenario dreams on a soft rescue package could soon turn into utter nightmare.
Dwindling public income as a result of the deep ongoing recession will fuel marked budget deviations for all the efforts to rein expenditure. There is little chance of escaping huge cuts and severe adjustments that will further contribute to depress production.
The other open challenge by mounting nationalist forces to Spain as a nation adds acute doses of uncertainty in the midst of a delicate outlook. Even if the right to self-determination stands for the moment being as the real issue, future demands for outright independence seem the logical outcome. Doubts on long term public finances finance sustainability will sooner or later become an issue.
Confronted with these acute problems at home, the government seems badly equipped to play its cards in the European scene. The German backtracking over the banking rescue conditions came as a shock to Madrid. Now it faces a potential debt rescue with no certainty other partners will keep past promises.
The tide has shifted to a more restrained attitude once the danger of immediate implosion has ceased. By delaying a decision on whether to embark on a call for help, Madrid is providing the perfect excuse for others to disengage themselves from past pledges. Should it continue to dither, others might simply shelve European Central Banks plans to enforce a combined effort to save Spain before it falls in deep trouble.