Debt crisis: Standard & Poor’s downgrades Spain's credit rating again
Standard & Poor's Ratings Services has downgraded Spain a notch, citing increasingly unpredictable financing conditions that could squeeze a private sector already pressured by struggling economic growth.
S&P expects the Spanish economy will grow at about 1pc in real terms next year, down from the 1.5pc pace it forecast in February Photo: Reuters
The move comes as politicians in Slovakia finally voted to expand Europe's bail-out fund, ending a nail-biting stand-off that threatened the Greek rescue mission and rattled global markets.
S&P expects the Spanish economy will grow at about 1pc in real terms next year, down from the 1.5pc pace it forecast in February.
In downgrading the Iberian nation, S&P cited growing challenges for Spain's private sector as it seeks fresh external financing to roll over high levels of external debt.
S&P now rates Spain at AA-, three steps below the top AAA rating. Its outlook is negative.
Slovakia became the last of the 17 members to ratify new powers for the €440bn (£385bn) European Financial Stability Facility (EFSF) in a move that will deliver eurozone leaders as much as €3 trillion firepower against the escalating debt crisis.
The news came as the Financial Times reported that emerging market countries are working on ways to contribute money rapidly to expand the effective firepower of the International Monetary Fund, with the aim of increasing its role in fighting the eurozone sovereign debt crisis. An announcement is due at the G20 in early November, it is claimed.
Slovakia, the tiny state whose vote was needed to pass the raft of rescue measures agreed on July 21, had rejected the motion on Tuesday in a dramatic vote that toppled its coalition government. On Thursday night the plan was passed by 114 votes to 30 with three abstentions. Ivan Mikos, Slovakia's finance minister, said: "The price was high, but I am glad that Slovakia at the end delivered on its commitments and we don't block this tool for the eurozone to stem the crisis."
President Herman Van Rompuy and President José Manuel Barroso welcomed the result in a joint statement: "The EFSF provides us with a stronger, more flexible tool to defend the financial stability of the euro area."
European leaders were desperate to secure ratification before the G20 finance ministers meeting in Paris this weekend.
From its current role of selling bonds to finance loans to stressed members, the EFSF's new powers will allow it to offer credit lines to troubled governments, shore up stricken banks and increase its emergency funds by up to €3 trillion. The July agreement included a €159bn second bail-out for Greece and support for other stricken countries, too.
Richard Sulik, the rebel leader of a minority party within Slovakia's four-member Coalition, resisted intense pressure and refused to approve the plans. He told the Slovakian parliament: "I'd rather be a pariah in Brussels than have to feel ashamed before my children, who would be deeper in debt should I back raising the volume of funding in the EFSF."
His stance made him an unlikely hero among discontented Europeans. But his example has worried politicians and financiers who now fear further measures will be even tougher to pass.
Analysts have warned that even the EFSF's expanded powers will not be enough to stem the crisis. Lutz Karpowitz, an analyst at Commerzbank, told Bloomberg that Slovakia's vote did not "constitute a solution". She said: "The EFSF would still be too small to support countries like Italy or Spain should the necessity arise."
The Slovakian vote, which many expected to be delayed until Friday, came too late to boost markets. The Stoxx Europe closed down 1.1pc; the French CAC and German Dax each slid 1.3pc. The FTSE 100 was off 0.7pc.