Spain Cut by S&P for 2nd Time This Year on Banks, Economy

The fifth largest economy in the Euro Zone is contracting again. The IMF raised $420 billion to be thrown at Europe, including Spain, that continues to chant "we don't need rescue fund." Lehman Brothers and Bear Sterns said the same thing in 2008. Too bad Spain simply cannot print money as a solution to its problems.  

"Spain's budget trajectory will likely deteriorate against a background of economic contraction," "At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain's net general govern debt could rise further."

Headline: Spain Cut by S&P for 2nd Time This Year on Banks, Economy

Concerns that Spain will have to provide further fiscal support to the banking sector as the economy contracts prompted Standard & Poor's to cut the nation's sovereign credit rating to BBB+ from A. Spain's short-term rating was lowered to A-2 from A-1, while the outlook on the long-term rating is negative, New York- based S&P said in a statement yesterday. The nation's 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. Banks threaten to disrupt the premier's efforts as bad loans reach the highest levels in almost two decades. "Spain's budget trajectory will likely deteriorate against a background of economic contraction," S&P wrote in the statement yesterday. "At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain's net general govern debt could rise further." This is the second downgrade of Spain by S&P this year. The firm cut Spain along with France and other European nations on Jan. 13. Since then, the yield on Spain's 10-year bonds have risen to 5.83 percent from 5.22 percent, while borrowing costs for France are little changed at 2.98 percent. Spain's yields are up from about 4.13 percent in January 2009, when S&P stripped it of its top AAA rating.

Source: finance.yahoo.com

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