President José Luis Rodriguez Zapatero received an unexpected gift a day after national celebrations had offered him the chance to claim Spain's singularity. Risk agency Standard&Poor's announced in Thursday's last minutes that it had downgraded the Spanish sovereign debt qualification to AA-, from AA.
S&P's analysts enumerate a few reasons for their decision:
“high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,”
which places some of the guilt on the sorry state of the economy everywhere, somehow rejecting the argument of national singularity but, more importantly, the official data that recently pointed at a recovery, if a slow one.
The ratings agency mentions, too, that
“the financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further.”
And, obviously,
“the incomplete stat
e of labor market reform, which we believe contributes to structurally high unemployment and which will likely remain a drag on economic recovery.”
How the markets reaction on Friday will confirm whether the optimists' supposition about this hit having been already discounted is true. What is clear is that S&P's cut will change lines in political speeches, now that the general elections are quickly approaching (they're due on November 20).
Update | It turns out the secondary market only calmed down when the European Central Bank on Friday began to purchase from 2-year to 10-year Spanish bonds, after Spain's risk premium had jumped 10bp to almost 320bp. Some traders in Madrid told us markets “have grown tired of ratings agencies' antics,” anyway, which perhaps tells us more about their hearts than about their professional impressions.
So no change on the menu of food for thought for the G20 finance ministers and central bank chiefs, who are heading at this moment to Paris for yet another euro-discussion festival.
