Reuters | Sat May 29, 2010 | 3:11am IST
Fitch downgraded Spain’s credit rating on Friday, a day after the country adopted austerity measures, demonstrating the difficulty of steering out of the euro zone debt crisis with budget cuts that restrict growth. The widely anticipated downgrade followed a warning by a European Central Bank policymaker that Europe’s predicament could spread to other regions while labor unions threatened strikes and investment banks were hurting. Spain’s parliament approved a 15 billion euro ($18.4 billion) spending cut on Thursday, following the lead of Greece, Portugal and Italy in trying to ease a crisis that has undercut the euro, rattled banks and threatened European cohesion. The euro has fallen nearly 8 percent versus the U.S. dollar in May, and gold hit a record high earlier this month as investors searched for a safe haven.
On Wall Street, the Dow and the S&P 500 both fell more than 1 percent on Friday, contributing to the worst monthly decline for the indexes since February 2009. The Fitch downgrade "definitely spooked the market, no doubt about it," said Terry Morris, senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania. Spain’s cuts have angered labor unions and Fitch Ratings cited lower economic growth resulting from "a lower level of private sector and external indebtedness" in knocking the country’s rating to AA+ from AAA. Standard & Poor’s downgraded Spain last month but put its outlook at negative while Fitch rated it stable. "Stable? Spain should be downgraded multiple notches," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.
Bloomberg | April 29, 2010 | 03:26 EDT
Spanish Deputy Finance Minister Jose Manuel Campa said that his country will have no trouble financing 16.2 billion euro ($21.3 billion) bond redemption in July and won’t need to ask for European Union aid as Greece has. Campa said in a phone interview yesterday that Spain would have no problems “at all” financing the redemption, which is the next bond to fall due. Asked if there was any chance Spain would need EU financial help, he said “no.” Spain is “surprised” by a downgrade yesterday from Standard & Poor’s, which is based on overly pessimistic growth forecasts, he said. S&P cut its rating on Spanish debt to AA, putting the nation that was AAA-rated until January 2009 on a par with Slovenia, as it said Spain is underestimating its fiscal problems and overestimating its ability to grow.
The risk premium on Spanish debt rose to the highest in more than a year and the cost of insuring its debt against default reached a record as concerns about Greece’s ability to pay bondholders spilled over into Spanish and Portuguese markets. Campa said the rating move won’t change Spain’s borrowing plan for this year. It will continue to issue a 15-year bond “to ensure it has enough liquidity in the market” and may sell debt in dollars, he said.
“We have been observing all through our issues throughout the year strong demand for Spanish paper and we expect that to continue,” he said in a Bloomberg Television interview in Madrid today. “We’re planning to continue the funding program throughout the year regularly.” Spanish bonds fell today for a ninth day, pushing
Bloomberg | April 28, 2010 | 13:12 EDT
German Chancellor Angela Merkel and the International Monetary Fund pledged to step up efforts to overcome the Greek fiscal crisis as Standard & Poor’s downgraded Spain and investors sold bonds in Europe’s most indebted nations. “It’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be sped up now,” Merkel said in Berlin today. Flanked by IMF Managing Director Dominique Strauss-Kahn, she said the “stability of the euro zone” was at stake if a 45 billion-euro ($59 billion) loan package for Greece can’t be delivered fast. A failure by policy makers to match such talk with action has fanned concern that the crisis will spread beyond Greece. Merkel has delayed German approval of loans in the face of voters’ opposition and S&P today cut Spain’s credit rating, a day after it dropped Greece to junk status and downgraded Portugal. The euro fell to the lowest in a year. “The hesitant and haphazard reaction of euro-zone policymakers to Greece’s predicament underscores the dangers of contagion,” said Marco Annunziata, chief economist at UniCredit Group in London. “The euro-zone has taken over six months to react and is allowing uncertainty to persist. This does not bode well for their ability to react quickly should a second flashpoint burst.”
Need for Action
Speaking in Berlin, European Central Bank President Jean- Claude Trichet said the stability of the “euro zone is impacted” by the delays in delivering the Greek aid, “underscoring the need for action.” Strauss-Kahn told reporters that “every day that is lost is a day where a situation is getting worse and worse.” European stocks and bonds rallied earlier after a German lawmaker stoked speculation that Greece would get as much as 120 billion euros from the EU and the IMF, only for the Spanish downgrade to dash that optimism. The euro dropped 0.2 percent to $1.3143 and Spain’s IBEX 35 Index plunged 3 percent to 10,167 points, the lowest in two months. The yields on Spanish, Greek, Portuguese and Italian 10- year bonds rose. Spain had its credit rating cut one