Friday

20th Oct 2017

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.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

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.

Macron puts trade policy on summit table

France's president wants a "political discussion" on EU trade policies at Thursday's summit, amid domestic concerns over Canada and South America deals. But his colleagues are likely to avoid a lengthy debate.

News in Brief

  1. Italian regions hold referendums on more autonomy
  2. EU leaders refuse to mediate Catalonia conflict
  3. Dutch PM: Brexit is 'still a bad idea'
  4. Commission to issue proposal on civil protection
  5. Tusk: 'No space' for EU intervention in Catalonia
  6. Austrian PM calls Brexit talks speed 'big disappointment'
  7. PM Muscat: journalist murder 'left a mark' on Malta
  8. Belgian PM: No crisis with Spain over Catalan remarks

Stakeholders' Highlights

  1. European Jewish CongressEJC Applauds the Bulgarian Government for Adopting the Working Definition of Antisemitism
  2. EU2017EENorth Korea Leaves Europe No Choice, Says Estonian Foreign Minister Sven Mikser
  3. Mission of China to the EUZhang Ming Appointed New Ambassador of the Mission of China to the EU
  4. International Partnership for Human RightsEU Should Seek Concrete Commitments From Azerbaijan at Human Rights Dialogue
  5. European Jewish CongressEJC Calls for New Austrian Government to Exclude Extremist Freedom Party
  6. CES - Silicones EuropeIn Healthcare, Silicones Are the Frontrunner. And That's a Good Thing!
  7. EU2017EEEuropean Space Week 2017 in Tallinn from November 3-9. Register Now!
  8. European Entrepreneurs CEA-PMEMobiliseSME Exchange Programme Open Doors for 400 Companies Across Europe
  9. CECEE-Privacy Regulation – Hands off M2M Communication!
  10. ILGA-EuropeHealth4LGBTI: Reducing Health Inequalities Experienced by LGBTI People
  11. EU2017EEEHealth: A Tool for More Equal Health
  12. Mission of China to the EUChina-EU Tourism a Key Driver for Job Creation and Enhanced Competitiveness

Latest News

  1. May on mission impossible in Brussels
  2. EU seeks to shut down sea route from Libya
  3. Digital debate will be first test of Tusk's new policy crowbar
  4. EU Parliament: EU migrant quotas do have a future
  5. EU countries praise Tusk's new summit plans
  6. Commission employs double standards in Spain
  7. Legal study sounds alarm on 'Baysanto' merger
  8. Health MEPs want to phase out glyphosate by 2020