Spain came under renewed pressure to formally ask for a financial bailout after a ratings agency cut the country’s credit worthiness to one point above junk.
Immediately after the move by Standard and Poors, the cost of borrowing spiked, but fell back.
Spain’s economy is in a mess and the agency said that Madrid’s refusal to ask for aid could pull the credit rating down still further.
Spain’s deputy prime minister, Soraya Sáenz de Santamaría, said: “The Standard and Poors report does not match the treatment the debt markets are giving the Spanish economy and the way we have financed ourselves in recent days. It has to be said also that many of these reports do not take into account the structural reforms that we have made.”
The markets’ reaction suggests traders expected the downgrade.
Spain’s conservative leadership have maintained they are not ready to ask for a bailout yet. But many economists believe that were the country’s credit worthiness cut to junk, the humiliating process of asking for an international handout would be speeded up.