Moody’s warns Spanish rating may be cut

| December 15, 2010
Moody's warns Spanish rating may be cut

Ratings agency Moody’s today announced it has put Spanish bonds on watch for a possible downgrade due to its high funding requirements.

However, the agency said it does not expect Spain to turn to the EU fund for a bailout.

In a statement, Moody’s lead analyst on Spain Kathrin Muehlbronner, said: “Moody’s does not believe that Spain’s solvency is under threat and in its base case assumptions does not expect the Spanish government to have to ask for EFSF liquidity support.”

However, it added that Spain is vulnerable to “funding stress”.

The euro dipped on the news.

Spain, and many other euro zone economies, have been closely- watched since Ireland was forced to seek a multi-billion euro bailout.

Spain, Portugal and Italy’s borrowing costs have been soaring to dangerous levels – raising fears that they could be next in line for a bailout.

However, bailing out Spain would require a much larger sum than those provided to Greece and Ireland, according to analysts.

Last week, Spain’s finance minister insisted that the country will not follow Greece and Ireland and seek a bailout.

In a newspaper interview, Elena Salgado said: “Our fiscal adjustment is on track… we have done all the things that we had to do with our financial sector.”

She added that Spain is “absolutely not” seeking a rescue.

The Spanish economy accounts for 12% of economic output among the 16-member bloc – equivalent to twice that of Ireland, Portugal and Greece combined.

Earlier this month, Spain unveiled a fresh round of austerity measures in an attempt to trim the country’s deficit down to 3% of GDP in the next four years.

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