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Debt Crisis

Moody's downgrades Spain's credit rating

European leaders are feeling the pressure today as Spain becomes the latest country to experience a credit rating downgrade.

MORE PRESSURE HAS been piled on European leaders following the downgrade of Spain’s credit rating by Moody’s yesterday.

The credit rating agency chopped Spain’s government bond ratings by two notches from Aa2 to A1 with a negative outlook.

The fresh blow to Spain comes just days after a downgrade by Standard & Poor’s.

In its explanatory note, Moody’s said that since Spain’s ratings were put under review in July, no credible resolution of the sovereign debt crisis in Europe had emerged.

Spain continues to be “vulnerable” to market stress and event risk because of its large borrowing needs, as well as the high external indebtedness of its banking and corporate sectors, said the agency.

There was more bad news for the Spanish government as Moody’s said it expects GDP growth next year to be 1 per cent (at best), compared with earlier predictions of 1.8 per cent.

Meanwhile, Moody’s also placed Belgium’s current Aa1 rating on review because of “similar concerns” about the euro area debt crisis.

Earlier this week, France’s triple-A rating was put in the “at risk” category by Moody’s Investors Service.

European leaders are due to hold a summit this weekend to increase the size of the euro area’s rescue fund, the EFSF, as part of a plan to resolve the debt crisis.

The Guardian has reported that France and Germany have agreed to expand the fund to €2 trillion, as well as support the recapitalisation of the region’s shaky banks.

According to Bloomberg, no official comment was forthcoming from either Angela Merkel or Nicolas Sarkozy on the matter.

Merkel said this weekend’s meeting will be an important step but not a final one in the resolution of the crisis.

Read: Spain’s credit rating downgraded by Standard and Poor’s>

More: Moody’s warns on France’s credit rating>

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