Monday

28th May 2018

Spanish regions downgraded to 'junk'

  • Catalonia's financing problems are worrying investors ahead of regional elections (Photo: Olinta Lopez Rafel)

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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

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.

A credit line of up to €100 billion has already been set aside by the eurozone bailout fund for Spain's banks. The bank problem has ballooned the country's deficit for this year because the government had to prop up the banks on its own, before receiving EU money.

The European Commission has suggested it will treat Spain as a special case when it examines how Madrid's austerity performance, but the bank bailout is to stay part of government debt.

Last week, after German insistence, EU leaders decided that the bailout fund is not to deal with "legacy debt" when funding banks in the future.

This funding scheme also depends on having a eurozone bank supervisor within the European Central Bank up and running - a process which is likely to take more than a year.

Analysis

Spain's bailout dilemma: not if, but when and how

Markets rallied on Tuesday when two German lawmakers suggested Berlin is warming to the idea of a Spanish bailout. But the wait-and-see game in Madrid is likely to take a few weeks longer.

Debt relief talks mar Greek bailout exit

While the Greek government has committed to fulfill the last creditors' requirements in the coming month, Europeans and the International Monetary Fund are still far from an agreement on measures to reduce the country's debt in the future.

EU pessimistic on permanent US trade exemption

EU trade chief said the US will impose tariffs or "other limiting measures" on 1 June, as the EU's offer to start limited trade talks is probably not enough for the protectionist Trump presidency.

Analysis

EU has no 'magic bullet' against US Iran sanctions

EU leaders in Sofia will discuss how they can protect the bloc's economic interests against US threats to sanction companies doing business in Iran. But their options are limited.

Opinion

EU budget must not fortify Europe at expense of peace

Given the European Commission new budget's heavy focus on migration, border management and security, many are asking whether the proposal will fortify Europe at the expense of its peace commitments.

News in Brief

  1. Italy set to pick eurosceptic finance minister
  2. UK foreign minister fooled by Russian pranksters
  3. Rajoy ally gets 33 years in jail for corruption
  4. Close race as polls open in Irish abortion referendum
  5. Gazprom accepts EU conditions on gas supplies
  6. Facebook tells MEPs: non-users are not profiled
  7. Commission proposes ending France deficit procedure
  8. UK households hit with Brexit income loss

Stakeholders' Highlights

  1. Counter BalanceEuropean Ombudsman requests more lending transparency from European Investment Bank
  2. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  3. Centre Maurits Coppieters“Peace and reconciliation is a process that takes decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  4. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  5. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  6. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  7. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries
  8. European Jewish CongressEU Leaders to Cease Contact with Mahmoud Abbas Until He Apologizes for Antisemitic Comments
  9. International Partnership for Human RightsAnnual Report celebrates organization’s tenth anniversary
  10. Nordic Council of MinistersNordic Cooperation Needed on Green Exports and Funding
  11. Mission of China to the EUPremier Li Confirms China Will Continue to Open Up
  12. European Jewish CongressCalls on Brussels University to Revoke Decision to Honour Ken Loach