Moody’s slashed Spain’s credit rating by three notches, days after the government set a deal to borrow $125 billion to shore up its banks.
“This will further increase the country’s debt burden, which has risen dramatically since the onset of the financial crisis,” Moody’s said yesterday.
The rating was dropped three levels from A3 to Baa3, the lowest level of “investment grade” or just above “speculative” or “junk” grade.
The downgrade came after Spain requested a rescue for its banks from the European Union’s emergency fund on Saturday, a move that will pass the €100 billion through the government to the banks — meaning the debt is added to Madrid’s already outsized official borrowings.
“The Spanish government has very limited financial market access,” Moody’s noted.
“The Spanish economy’s continued weakness makes the government’s weakening financial strength and its increased vulnerability to a sudden stop in funding a much more serious concern than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years.”