Friday

27th May 2016

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.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

News in Brief

  1. Syrian refugees sue Denmark over immigration law
  2. Ukraine bans Gorbachev for backing Crimea's seizure
  3. Dozens dead in two shipwrecks outside Libya
  4. Slovak PM says his country is no place for Muslims
  5. Juncker's spin-doctor warns of populist 'horror'
  6. EU urges Hungary to end discrimination of Roma children
  7. Majority of voters think UK will stay in EU
  8. Leading MEP says Greek bailout will not work

Stakeholders' Highlights

  1. ACCAEducation and Training 2020 - Giving Young People the Workplace Skills They Need
  2. EPSUTrade Unions Back New Undeclared Work Platform
  3. European Healthy Lifestyle AllianceCould targeting children’s fitness boost academic performance?
  4. World VisionDeclares the World Humanitarian Summit a Positive Step in a Longer Journey to Ending Need
  5. EJCPresident Dr. Moshe Kantor on Brexit and the Jewish Question
  6. Swedish EnterprisesNew rules for posted workers - Better Protection or the End of Posting ?
  7. World VisionWhy The EU Needs to Put Children at the Centre of Emergencies - In Their Words
  8. ACCASustainability Reporting in Danger of Losing Its Momentum Says ACCA and CDSB
  9. Dialogue PlatformDiversity as Heritage of Humanity! Join the “Colors of the World“ Show at the EP
  10. Centre Maurits CoppietersNew Responses to the Basque Peace Process? MEP Juaristi on Stateless Challenges Conference
  11. European Healthy Lifestyle AllianceImproving Cardiovascular Health Begins by Closing the Gap in Sex Disparities
  12. IPHRBrussels Talks to Take Stock of Human Rights in Turkmenistan