Friday 15 November 2019

New pressure on Spain to seek aid as S&P cuts its rating again

Paul Day and Rodrigo De Miguel

SPAIN faced renewed pressure to take the politically humiliating step of seeking sovereign aid yesterday after a credit agency cut its rating for the government's debt to near junk.

Standard and Poor's said recession was limiting Spain's options on policy and said Madrid's delay in asking for aid could drag on the new rating, which it kept on negative outlook -- indicating another cut is in prospect.

Another headache for the government came with data showing consumer prices rose at their fastest pace in 16 months in September, further depressing demand among cash-strapped consumers.

"We expect the current situation to continue to run until either market or political pressures become more acute," US investment bank JP Morgan said in a note to clients.

"The promise of ECB action may be holding back both sorts of pressure and there is little evidence to suggest either will necessarily re-appear over the next few weeks."

The ECB's plan to buy the bonds of struggling governments has raised hopes of an end to the most acute phase of the eurozone's crisis. Spain's delay in asking formally for such aid is undermining such hopes.

Prime Minister Mariano Rajoy, who has said he will only make an aid request decision when he had all the details, is thought to be waiting for regional elections on October 21 and, if the ECB effect keeps debt costs down, he may delay a decision further.

While neither Mr Rajoy or the eurozone's paymaster Germany seem keen for Spain to dive in to a rescue plan, further market pressure or a sovereign downgrade to junk would hasten the process, economists said.

"In the short term we suspect that the noise and column inches generated by the S&P downgrade will be disproportionate to its impact," Citi said.

"But the longer-term impact could be very significant if the market sees the trajectory towards Spain's eventual exclusion from (investment grade) indices as inevitable." (Reuters)

Irish Independent

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