Newspaper article The Christian Science Monitor

Bond Downgrade Puts Pressure on Spain for Bailout Request (+Video)

Newspaper article The Christian Science Monitor

Bond Downgrade Puts Pressure on Spain for Bailout Request (+Video)

Article excerpt

Pressure mounted Thursday on Spain to officially request a European bailout after rating agency Standard & Poors downgraded the countrys rating to the lowest investment grade possible. But even if Madrid finally makes the long-expected request, it still faces one more obstacle: Germany, which doesn't believe Spain needs the bailout.

S&P downgraded late Wednesday Spains debt two notches to BBB-, just a notch above the non-investment rating of junk status. The deepening economic recession is limiting the Spanish government's policy options, S&P said in a press release.

The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the lack of a clear direction in the 17-member eurozone policy, the rating agency added.

We were surprised, said Spanish Secretary of State for Economic and Business Affairs Fernando Jimenez Latorre about the downgrade. He suggested though S&P was wrong. The agency could reconsider once the goals we have set out are met.

But the Spanish government is running out of credibility. The International Monetary Fund and most other private and multinational institutions say the governments forecast of a 0.5 percent contraction of its gross domestic product in 2013 is far too optimistic. The IMF said Monday it expects the GDP to fall 1.3 percent, while S&P expects 1.4 percent decline.

The IMF also said that, as a result, Spain will inevitably miss its public-deficit targets of 6.3 percent of GDP for 2012 and 4.5 percent for 2013. It estimates a 7 percent deficit in 2012 and 5.7 percent in 2013.

To cut or not, that is the question

Under these circumstances, pressure is building for Spain to request a bailout. Indeed, Spains 2013 budget proposal earmarked interest payments on debt that will by far outstrip savings from public spending cuts.

Still, Germany is reluctant to support the bailout because it sees no tipping point just yet. …

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