Rating agency Moody’s is threatening to downgrade Spain’s government bonds concerned by the country’s weak economic growth and the high rates of interest it is having to offer to bond buyers.
It cited worried about Madrid’s failure to reign in Spain’s regional governments which are heavily debt-laden after years of reckless spending.
Five Spanish banks, including the euro zone’s biggest Santander, may also be downgraded.
Analyst Pablo del Barrio with X-Trade Brokers said: “This downgrade will affect us by damaging our reputation. But on the other hand it will help us correct and accelerate the measures we have to undertake, which are not only short term.”
The Moody’s 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 as they were buoyed by news of the early election but the euro did fall in value.