Wednesday

7th Dec 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.

No euro crisis after Italian vote, says EU

The Italian PM's resignation after a failed constitutional referendum has not changed the situation, the Eurogroup president has said. Financial markets have remained stable.

Stakeholders' Highlights

  1. European Jewish CongressEJC President Breathes Sigh of Relief Over Result of Austrian Presidential Election
  2. CESICongress Re-elects Klaus Heeger & Romain Wolff as Secretary General & President
  3. European Gaming & Betting AssociationAustrian Association for Betting and Gambling Joins EGBA
  4. ACCAWomen of Europe Awards: Celebrating the Women who are Building Europe
  5. European Heart NetworkWhat About our Kids? Protect Children From Unhealthy Food and Drink Marketing
  6. ECR GroupRestoring Trust and Confidence in the European Parliament
  7. UNICEFChild Rights Agencies Call on EU to put Refugee and Migrant Children First
  8. MIRAIA New Vision on Clean Tech: Balancing Energy Efficiency, Climate Change and Costs
  9. World VisionChildren Cannot Wait! 7 Priority Actions to Protect all Refugee and Migrant Children
  10. ANCI LazioRegio-Mob Project Delivers Analysis of Transport and Mobility in Rome
  11. SDG Watch EuropeCivil Society Disappointed by the Commission's Plans for Sustainable Development Goals
  12. PLATO15 Fully-Funded PhD Positions Open – The Post-Crisis Legitimacy of the EU (PLATO)

Latest News

  1. EU fraud case sheds light on Danish and Polish politics
  2. Estonia and Finland have best EU science teaching
  3. Italy scrambles to save world's oldest bank
  4. Commission 'shockingly passive' on Lithuania gay rights
  5. Secret tax deals in Luxembourg in dramatic rise
  6. EU ministers approve 'Juncker plan' extension
  7. Commission tries to revive GMO opt-out proposal
  8. Merkel calls for Muslim veil ban