By Adam Cadle
Spain’s sovereign ratings have been downgraded to BBB from A by Fitch Ratings, with a negative outlook also remaining in place.
Fitch stated that the negative outlook indicates there is a substantial risk of further downgrades due to the country’s “high level of foreign indebtedness” and “prolonged economic weakness as it deleverages and rebalances.”
The global rating agency added that the downgrade reflects the fact that the restructuring and recapitalisation of the banking sector is likely to cost six per cent of GDP and also because gross general government debt (GGGD) has been estimated to peak at 95 per cent of GDP in 2013.
Further, the fall in Spain’s credit profile comes as a direct result of “policy missteps” at European level. The absence of a “credible vision of a reformed EMU and financial “firewall” has rendered Spain and other so-called peripheral nations vulnerable to capital flight and undercut their access to affordable fiscal funding,” according to Fitch.