World Bulletin / News Desk
Standard & Poor's on Wednesday cut Spain's sovereign credit rating to BBB-minus, just above junk territory, citing a deepening economic recession that is limiting the government's policy options to arrest the slide.
The S&P downgrade comes with a negative outlook reflecting the credit ratings agency's view that there are significant risks to economic growth and budgetary performance, plus a lack of clear direction in euro zone policies.
"In our view, the capacity of Spain's political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining," S&P said in a statement.
S&P's two-notch downgrade from BBB-plus brings it in line with Moody's Investors Service's Baa3 rating. Moody's has Spain on review for a possible downgrade.
Both firms have Spain just on the cusp of junk status. Fitch Ratings has a BBB rating on Spain, one notch higher, but also with a negative outlook.
A spokeswoman at Spain's Economy Ministry told Reuters the government had no comment on the ratings action.
The country has been in recession since earlier this year, its second economic contraction in just a few years, and unemployment is stubbornly high at close to 25 percent with a return to job creation still two years away.
Falling tax revenue and rising costs of unemployment benefits are confounding the government's efforts to hit a 2012 deficit reduction target of 6.3 percent of gross domestic target agreed with the European Union.
Both the International Monetary Fund and Spain's own Central Bank cast doubt on the savings envisioned in Prime Minister Mariano Rajoy's 2013 budget, saying they are based on a too-rosy outlook for the economy.
In the wake of the downgrade, the euro dropped about 0.25 percent to $1.2865 in late New York trade from just under $1.29 prior to the news.
"This is weighing on the euro. A downgrade from S&P could be followed by a downgrade from Moody's, and while S&P did not downgrade Spain to junk, Moody's might," said Kathy Lien, managing director at BK Asset Management in New York.
"If Moody's goes to junk status, that's even more significant, and this adds to the pressure on Moody's to make a decision. It could lead to higher bond yields in Spain and push the government closer to asking for a bailout," Lien added.
In European trade earlier on Tuesday, ten-year Spanish bond yields fell 1 basis point to 5.83 percent. Those yields spiked above 7 percent earlier this year, but have since come down on a European Central Bank bond-buying plan.
SOCIAL DISCONTENT AND EURO ZONE DOUBTS
Prime Minister Rajoy's centre-right People's Party has an absolute majority in parliament and so far has been able to pass spending cuts and economic reforms without any problem.
However, street protests have increased in recent months as Spaniards revolt against public sector wage cuts and lower spending on education and healthcare. Resentment is also rising over huge public bailouts for the country's crippled banks, while social benefits are cut.
Although Rajoy's PP governs 11 of 17 Spanish regions, which have been forced to make massive budget cuts, S&P noted that tensions between the central and regional governments are rising, "leading to substantially diluted policy outcomes."
The agency said Rajoy's resolve will be "repeatedly tested by domestic constituencies."
Although the European Central Bank has set up a bond-buying programme that would support Spanish debt prices on the secondary market, Spain has balked at signing up for international aid because it would come with harsh conditions.
"We view the Spanish government's hesitation to agree to a formal assistance program ... as potentially raising the downside risks to Spain's rating," S&P said in its note.
The agency also said that euro zone policy makers must show progress on implementing a banking union that would allow Europe to directly recapitalise Spanish banks, taking the weight off of the Spanish government.
The Slovak pipeline operator Eustream estimated it would ship 22.4 million cubic metres through the pipeline while the Slovak economy minister said the link was ready to run at full capacity.
China has also said it would like to continue to develop "friendly cooperation" with Ukraine and that it respects the ex-Soviet state's independence, sovereignty and territorial integrity.
Selling a fleet of subs would mark the first time since at least the end of World War Two that Japan had sold a complete weapons platform overseas.
The head of Iran's atomic agency says the agreement will be signed next month
A little more than a month ahead of general elections, new figures shows the Brazilian economy contracted by 0.6 percent in the second quarter of 2014
Russia cut off the gas flow in mid-June after the two sides failed to agree on pricing and debts owed for previous gas supplies.
Malaysia Airlines will be de-listed from the Kuala Lumpur exchange by the end of 2014
Venezuela's Petroleum minister, Rafael Ramirez, said earlier this year that PDVSA could import crude as a "last resort" to find diluents for its heavy crudes
Air France, the French network of Air France-KLM said on Wednesday it has suspended its flights to Sierra Leone following advice from the French government
Ukrainian Prime Minister Arseny Yatseniuk said that Kiev knew of plans by Russia to halt gas flows this winter to Europe
The inquiry into tycoon Bernard Tapie has embroiled several of former president Nicolas Sarkozy's cabinet members including Lagarde.
The riot broke out in the southern industrial hub of Johor state on Tuesday at a factory run by JCY International , a Malaysian firm that makes parts for electronic giants including Samsung, Hitachi and Western Digital.
Hawaii and U.S. territories have strong dependency on petroleum imports, because of their physical isolation and lack of fossil fuel resources, while their residential electricity prices have been three to five times the average residential prices of the mainland U.S.
Buyers of Kurdish crude could face lawsuits from Baghdad if the oil moves close to U.S. soil and would also require the seller to provide costly indemnities against potential lawsuits
Deep job losses, route cuts and a change of leadership are expected to feature in a restructuring plan being prepared by Malaysia's government
New company will create the third largest global fast-food chain with annual sales of US$23 billion.