Fitch Praises Adjustment but Warns of Spain Downgrade
January 20th, 2012
The head of Fitch’s sovereign risk analysis, Ed Parker, said in Madrid that the countries which the rating agency placed on negative review last December, including Spain, “have a high probability of seeing their note lowered one or two notches later this month.” Parker went on to say that the reason for this is the sharp deterioration in economic conditions in the eurozone, and the absence of effective measures to resolve the sovereign crisis in the region.
Parker did recognise the fiscal adjustment efforts undertaken by Spain, but considers that it will still be a hard challenge for the new government. At the same time he questioned the ability of the Government administration to “control the spending of the autonomous communities” in view of the strong deviation recorded by the regions in their deficit target. Along with this, he also warned of the risk of the loss of social unity due to the high level of unemployment.
“We understand that a remarkable macroeconomic correction is underway, but there are still problems with public finances and banking assets, and the labour market is dysfunctional,” said the analyst. Along with this, Parker also warned that, although low, a breakdown of the eurozone in 2012, due to the inability of European leaders to find credible solutions to the debt crisis, can not be ruled out.
According to El Pais, these statements by the Fitch executive, supports the views that the agency will follow the actions of Standard & Poor’s in the coming weeks, who on Friday cut the note of nine countries of the euro over the escalation of the crisis. Yesterday, their director general of sovereign ratings for Europe and Africa, Myriam Fernandez de Heredia, pointed out that even the new ‘A’ note is above what the country’s debt is valued at in the market.
To meet the threat, Fitch would cut its assessment of the creditworthiness of Spain in the long term from its current level of notable to good.
