Spain’s credit rating was downgraded on Thursday by Standard & Poor’s. The credit agency said the country’s levels of sovereign debt were excessively high and that the banks in Spain would need to receive an injection of aid as the economy in the country shrank.
This marks the second time that S & P has downgraded the rating for Spain. In doing so, it lowered the country’s long-term rating by two notches to a rating of BBB+ from an A, including a negative outlook, which indicates there may be additional reduction. The short-term ratings for Spain were also reduced by the credit agency.
The latest downgrade came at a time when Spain is becoming the central problem in Europe, with worries that it would be the next country that needs to major bailout. Back in January, S & P lowered the ratings of nine countries in Europe including Italy, Spain and France. At the same time, the agency warned that not enough fiscal measures had been put in place to strengthen the financial system against the debt crisis, which was entering its third year.
Even though Spain’s rating is still considered to be investment grade, the downgrade could means the country pays more when borrowing money. Those costs have already started to climb as Spanish bond yields have been inching close to 6%, which is dangerous territory.
S & P made its decision based on deteriorating numbers regarding the deficit in the country and the increased likelihood the government would need further help fiscally to support its banks.
