More Downgrades Hit Spain, Italian Banks

Spain was hit on Tuesday with its third downgrade in 13 months as Moody’s Investors Service dropped the troubled country’s rating two notches and left the outlook negative. Italy did not escape the day unscathed, either, as Standard & Poor’s hit its banking system, downgrading 24 banks and the nation’s Banking Industry Country Risk Assessment as well.

In a Bloomberg report, Moody’s said of its action that the “continued vulnerability of Spain to market stress” and lower prospects for growth were fueling an increase in the cost of borrowing. In a statement, it said, “Moody’s is maintaining a negative outlook on Spain’s rating to reflect the downside risks from a potential further escalation of the euro-area crisis.” Spain was cut to Moody’s fifth-highest investment grade, down two levels from Aa2 to A1 with a negative outlook.

Spain called the action unwarranted and more due to the eurozone crisis than its own economic woes. “The Spanish Treasury believes that this rating action may be motivated more by a short-term reaction to negative news about the eurozone debt markets than by an analysis of Spain’s medium- and long-term fundamental outlook,” it said in a statement. Moody’s had said in July that any further downgrades would likely be “limited to one notch.”