Troubled European nations' credit ratings are continuing to plummet. On October 13 Standard & Poor’s downgraded Spain to AA-, three steps beneath the optimum AAA rating. Last week the Fitch agency also downgraded Spanish credit worthiness (as well as Italian). S&P’s cited weak growth in Spain's economy (estimated at one percent this year, a reduction from February's 1.5 percent projection) as well as the general dire situation of the PIIGS EU member-states (Portugal, Italy, Ireland, Greece, and Spain).
The rating downgrades of these nations over the last year have compounded their general problems of debt, because lower ratings mean that these governments must pay significantly higher interest in order to get investors to buy their bonds. In the case of Spain, the recent downgrade was the third in three years.
Standard & Poor’s stated on October 13:
Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sectors debt, and the likely economic slowdown in Spain’s main trading partners.... The financial profile of the Spanish banking system will, in our opinion, weaken further.
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Photo: Spanish flag