S&P: “Spain’s bail-out request won’t affect its rating”

The possible request by Spain’s government for a full sovereign bailout is unlikely to directly affect the credit rating of the country, according to research by Standard & Poor’s.

On the contrary, a full bailout will constitute an official acknowledgement that the government is facing on-going risks to financing itself in the capital markets at sustainable rates.

“We think that the potentially advantageous terms Spain could receive under a full bailout could enhance the chances of success of Spain’s already ambitious and politically challenging fiscal and economic reform agenda,” the rating agency said.

Standard & Poor’s expects that resistance to this agenda will continue to grow at regional and national level as disposable incomes continue to decline in the near term and as Spain’s labor market conditions remain very weak.

The agency is monitoring key factors: progress in rebalancing the economy, boosting competitiveness and generating employment, enforcing budgetary targets for the autonomous communities, stabilizing the rapidly rising public debt, and improving the resilience of Spain’s financial sector.

“We have also observed the rising political tensions between the central government and several of Spain’s regional governments regarding the timing and nature of compliance with regional budgetary targets,” S&P said.

At national level, the increase in unemployment affecting about one-quarter of Spain’s workforce suggests that the labor reforms instituted so far, while substantial, have not been sufficient to fully address the structural problems of the Spanish labor market.

“Unemployment, more concentrated in some regions than others, could in our view undermine the government’s mandate to pursue longer term reforms,” said the agency.

Spain is rated BBB+ at S&P, three levels above non- investment grade. It has a BBB rating at Fitch Ratings, two levels above junk, while its Baa3 grade at Moody’s Investors Service is the lowest investment grade rating.

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