Moody’s downgraded its credit rating on Spain Thursday, citing worries over the cost of the banking sector’s restructuring and the government’s ability to achieve its borrowing reduction targets.<\/p>\n
The agency said it was reducing its rating by one notch to Aa2 and warned that a further downgrade could be in the offing if there are indications that Spain’s fiscal targets will be missed and if the public debt ratio increases more rapidly than currently expected, or if the funding requirements for the so-called savings banks\u201d\u201dthe cajas\u201d\u201dare greater than anticipated.<\/p>\n
Though noting the government’s resolve in dealing with its problems and that Spain’s debt sustainability is not under threat, Moody’s said that “Spain’s substantial funding requirements\u201d\u201dnot only those of the sovereign, but also those of the regional governments and the banks\u201d\u201dmake the country susceptible to further episodes of funding stress.”<\/p>\n