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Europe: Further Spanish debt downgrade from AAA to (Singapore)

Fresh downgrade for Spanish debt
Page last updated at 21:58 GMT, Friday, 28 May Protected content UK
E-mail this to a friendPrintable version Regional banks are heavily exposed to the hard-hit real estate sector A second agency has downgraded Spain's credit rating, citing the country's poor growth prospects.

Fitch cut Spain's rating from the maximum AAA to AA+.

Standard & Poor's took the same step a month ago but Fitch's move is a fresh blow to the government which wants to ease market fears about its economy.

Also on Friday, six regional Spanish savings banks said they were negotiating alliances to avoid insolvency.

Many of the 45 savings banks operating in Spain have struggled after investing heavily in the property sector, causing a boom in construction before its collapse following the financial crisis.

But the market's collapse has now left lenders with debts worth 445bn euros ($550bn; £380bn), according to Goldman Sachs.

One of them, Cajasur, was taken over by Spanish authorities earlier this month after talks to merge it with a profitable bank ended.

Recovery 'muted'

Investor concerns that Spain could face a Greek-style debt crisis have prompted the government to approve a tough and unpopular 15bn-euro ($18.4bn; £13bn) austerity package to shore up its public finances.

The government wants to cut its public deficit to 3% of GDP by Protected content 11.2% last year.

Many Spaniards fear the effect the cuts will have on the economy in a country already struggling with an unemployment rate of 20% - twice the eurozone average.

The country moved out of recession in the first quarter of this year, with growth of 0.1%.

But Fitch said the economic recovery would be "more muted than that forecast by the government".

"The economic adjustment process will be more difficult and prolonged than for other economies with AAA rated sovereign governments, which is why the agency has downgraded Spain's rating to AA+," it said.

"The inflexibility of the labour market and the restructuring of regional and local savings banks will... hinder the pace of adjustment, particularly in the aftermath of the real estate boom," it warned.

The European Union has been anxious to see more fragile European economies - including Spain, Portugal and Greece - impose tougher austerity measures.


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