Spanish regions downgraded to 'junk'
Oct 23, 2012 12:43:05 GMT -5
Post by popcorn on Oct 23, 2012 12:43:05 GMT -5
Catalonia's financing problems are worrying investors ahead of regional elections (Photo: Olinta Lopez Rafel)
Spanish regions downgraded to 'junk'
BRUSSELS - Moody's ratings agency on Monday (22 October) downgraded five of Spain's biggest regions to "junk" status.
"Very limited cash reserves" as of September and "significant reliance on short-term credit lines" are Moody's main arguments for slashing Catalonia, Andalucia, Castilla-La Mancha, Extremadura and Murcia to below investment grade, where punters take high default risks when buying bonds.
Catalonia - representing a fifth of Spain's economy - saw its rating cut further into junk territory from Ba1 to Ba3, one month ahead of early elections responding to increased calls for independence.
Moody's warned that the region faces "large debt redemptions" in the coming months, as do Andalucia and Murcia.
The two regions where elections took place on Sunday - Galicia and the Basque Country - saw their rating kept stable, even though another ratings agency, Standard & Poor's last week downgraded Galicia to near-junk level.
The home turf of Prime Minister Mariano Rajoy, where his party scored well on Sunday, Galicia is seen as one of the reasons for Rajoy's hesitation in asking for a eurozone bailout so far.
Moody's regional downgrade comes a week after it kept Spain's overall rating at Baa3, one notch above junk status. But it warned this could go down if Spain does not ask for a rescue package.
A special bond-buying scheme announced by the European Central Bank could be triggered if the Spanish government makes an official bailout request and signs up to deadlines for reforms it has already announced.
Apart from the regional elections taking place in autumn, Rajoy is also hesitating due to conflicting views among EU leaders on when he should ask for help.
France wants him to do it as soon as possible, while Germany and Finland prefer - for domestic reasons - to have the Spanish request come only in November.
The series of downgrades is likely to speed up the process, as investors become increasingly wary of how Spain's financial and economic problems are being dealt with by the eurozone.
read more:
euobserver.com/economic/117953
