Spain quickly moved into damage limitation mode on the news that it had become the third Eurozone country to have its credit rating cut this week. Calling for calm, the government stressed it did have a plan to reduce the country’s deficit.
Cutting the rate from an AA+ to an AA, it was said, was not a disaster.
“It is important to put this into context. There are two agencies, one has given us a high rating the other has lowered their rating but just by one point. But that same agency still says our national debt is excellent,” explained Spain’s Finance Minister, Elena Salgado.
The problem is that the rate cut was due to concerns about Spain’s economic growth prospects.
Analysts say soaring unemployment and next-to-stagnant growth will hamper efforts to reduce its debt.
Sam Stovall of Standard and Poor’s gave his opinion. “Spain is a bigger concern for most investors because Spain represents 8.5 per cent of the EU GDP as of 2009, whereas Greece represented less than 2 per cent. Portugal represented less than 1.5 per cent. So a fairly large country like Spain having some concerns, I think that now in a sense we’re moving from the minor leagues up to the major leagues.”
With Portugal tipped to follow Greece in needing a cash bailout, Portuguese Prime Minister Jose Socrates held emergency talks with opposition leader Pedro Passos Coelho.
Portugal currently has a minority government and is not best placed to pass unpopular measures. The two leaders have agreed to vote together to accelerate a much contested government austerity plan.