Moody’s is threatening to downgrade Spain’s government bonds. The rating agency said it was concerned over the country’s economic growth and that it is having to pay such high rates of interest to borrow money.
A particular worry is the Madrid government’s failure to reign in Spain’s regional governments which are heavily debt-laden after years of reckless spending.
The notification adds to concerns the recent Greek rescue package has done little to halt the spread of the euro zone’s debt crisis.
In Madrid shares did not suffer too badly buoyed by news of an early election but the euro fell against other currencies.
Moody’s move to place the Aa2 government bond rating on review still means the country’s rating is at a high investment grade, far above those of Greece, Portugal and Ireland.
However international investors are concerned the euro zone’s fourth largest economy, hamstrung by anaemic growth rates and high unemployment, will fail to put its fiscal house in order and need a Greek-style bailout. Nerves about that have sent bond yields to their highest level in over a decade.
The agency downgraded the ratings of six Spanish regions reflecting the deterioration in their fiscal and debt positions. The regions were Castilla-La Mancha, Murcia, Valencia, Catalonia, Andalusia and Castilla y Leon. It placed a further seven regional debt ratings under review for downgrade.