Thu, Mar10, 2011
MADRID, March 10 (Xinhua) -- Debt qualification agency Moody's on Thursday lowered its qualification of Spain's sovereign debt by one mark from Aa1 down to Aa2. The agency refused to rule out lowering its qualification of the debt further in the future.
Moody's explains its decision by saying that the cost of restructuring the Spanish financial system is higher than expected and that it will provoke an increase in the country's deficit.
While the Spanish government calculates its reforms need an injection of 20,000 million euros, Moody's believes it will be more than twice that figure and that the amount needed could even rise as high as 110,000 million euros.
These needs place the Spanish economy at risk from any turbulence in the financial markets.
The agency is also worried about the lack of government control over the budgets of Spain's autonomous communities and highlights that the country has only "moderate" perspectives of short term economic growth.
Meanwhile the Spanish government's reform of labor laws and pensions, which will see the retirement age raised to 67 by 2029, have been praised by Moody's and are given as reasons why Spain's qualification has not been lowered further.
Moody's also believes that Spain can sustain its current debt and doesn't believe that the country will need any help from rescue funds.
This is the second time that Moody's has lowered its qualification of Spain's sovereign debt in recent months. The first time it did so was in September 2010, when it reduced it from the highest possible rank: AAA to Aa1. The agency then warned of a further reduction in December of last year.
Two other debt qualification agencies, Standard and Poor's and Fitch, also withdrew their maximum qualification for Spain's debt in April and May last year, respectively.
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