Spanish bail-out request 'not likely' to hit credit rating
by Daniel Mason
23 August 2012
Requesting a full bail-out would probably not lead to Spain suffering a credit rating downgrade – because along with institutional reform in the eurozone it could help restore investor confidence, Standard & Poor's has claimed.
Spain has already been granted up to €100bn in support loans for its troubled banks, and seeking a wider aid package would "constitute official acknowledgment that the government is facing ongoing risks to financing itself in the capital markets at sustainable rates", according to the rating agency.
"We think that the potentially advantageous terms Spain could receive under a full bail-out could enhance the chances of success of Spain's already ambitious and politically challenging fiscal and economic reform agenda," it said yesterday. As a result Spain's, rating with S&P – currently BBB+ with a negative outlook – would "likely not be directly affected" if Prime Minister Mariano Rajoy went ahead with a bid for help from the European Union.
Meanwhile if EU leaders follow through on their commitment to setting up a single eurozone banking supervisor, and the European Central Bank revives its bond-buying programme as suggested by ECB president Mario Draghi earlier this month, it would "provide the Spanish authorities with time to put additional economic and fiscal reforms in place that would be conducive to restoring investor confidence", S&P said.
However, the rating agency warned that "uncertainties" remained at regional, national and European level. These include "rising political tensions" between the Spanish government and regional authorities, and the German constitutional court's impending decision on the legality of the eurozone's new permanent bail-out fund, the European Stability Mechanism. The ruling is due on September 12.
In addition, Spain's unemployment rate of close to 24.8 per cent "suggests that the labour reforms instituted so far, while substantial, have not been sufficient to fully address the structural problems of the Spanish labour market. Unemployment, more concentrated in some regions than others, could in our view undermine the government's mandate to pursue longer-term reforms," according to the report.
And if Greece, or any other country, exits the single currency it "could raise significant investor doubts about the future eurozone membership of Spain" and "could well hasten further capital outflows from Spain" – therefore putting the country's credit rating at risk. It could also have the effect of "permanently jeopardising the ability of the Spanish public and private sectors to access financing at sustainable rates", S&P said.
Spain has already been granted up to €100bn in support loans for its troubled banks, and seeking a wider aid package would "constitute official acknowledgment that the government is facing ongoing risks to financing itself in the capital markets at sustainable rates", according to the rating agency.
"We think that the potentially advantageous terms Spain could receive under a full bail-out could enhance the chances of success of Spain's already ambitious and politically challenging fiscal and economic reform agenda," it said yesterday. As a result Spain's, rating with S&P – currently BBB+ with a negative outlook – would "likely not be directly affected" if Prime Minister Mariano Rajoy went ahead with a bid for help from the European Union.
Meanwhile if EU leaders follow through on their commitment to setting up a single eurozone banking supervisor, and the European Central Bank revives its bond-buying programme as suggested by ECB president Mario Draghi earlier this month, it would "provide the Spanish authorities with time to put additional economic and fiscal reforms in place that would be conducive to restoring investor confidence", S&P said.
However, the rating agency warned that "uncertainties" remained at regional, national and European level. These include "rising political tensions" between the Spanish government and regional authorities, and the German constitutional court's impending decision on the legality of the eurozone's new permanent bail-out fund, the European Stability Mechanism. The ruling is due on September 12.
In addition, Spain's unemployment rate of close to 24.8 per cent "suggests that the labour reforms instituted so far, while substantial, have not been sufficient to fully address the structural problems of the Spanish labour market. Unemployment, more concentrated in some regions than others, could in our view undermine the government's mandate to pursue longer-term reforms," according to the report.
And if Greece, or any other country, exits the single currency it "could raise significant investor doubts about the future eurozone membership of Spain" and "could well hasten further capital outflows from Spain" – therefore putting the country's credit rating at risk. It could also have the effect of "permanently jeopardising the ability of the Spanish public and private sectors to access financing at sustainable rates", S&P said.
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