Moody’s maintains Spain’s Baa3 rating

WASHINGTON - Agence France—Presse

While keeping Spain’s debt rating unchanged, Moody’s has assigned a negative outlook for Madrid, Spain’s capital, seen here in this file photo. AFP photo

Moody’s gave Madrid critical breathing room Oct. 16 in its efforts to sort out its economic problems, holding the country’s debt rating unchanged at Baa3, one step above “junk” grade.

But the US agency assigned Madrid a “negative outlook,” maintaining a threat to downgrade the country if conditions deteriorate.

Fiscal, structural reforms

Moody’s cited the European Central Bank’s willingness to buy Spanish government bonds to stabilize its borrowing rate as well as the government’s commitment to implementing fiscal and structural reforms necessary to improve its finances.

Moody’s also credited the ongoing efforts to restructure the Spanish banking sector and strengthen the banks.

“In summary, Moody’s believes that the combination of euro area and ECB support and the Spanish government’s own efforts should allow the government to maintain capital market access at reasonable rates, providing it with the time it needs to stabilize public debt over the next few years.” “The maintenance of market access is critical because the risk that some form of burden-sharing will be imposed on bondholders is material for those countries that rely entirely or to a very large extent on official-sector funding for an extended period of time.”

But Moody’s warned that the risks to the country’s situation remain “skewed to the downside,” and that the rating could go lower without progress on setting the country’s finances on a sustainable footing.