Following Monday's triple-downgrade of Greece's credit rating and perhaps more significantly, fellow-high-debt Spain also felt the sting of a downgrade by Thursday as part of the ratings agencies' ongoing skepticism of the so-called "PIIGS" nations (Portugal, Ireland, Italy, Greece, Spain).
Moody's Investment Services issued another downgrade, this one by just one notch, to Spain's rating, and followed it up with a warning that more would come if the nation reeling from banking and real estate collapses missed more financial targets. Spain's rating with Moody's now sits at "Aa2," with a negative outlook.
The Spain downgrade was explained as follows:
1.) Moody's expectation that the eventual cost of bank restructuring will exceed the government's current assumptions, leading to a further increase in the public debt ratio.
2.) Moody's continued concerns over the ability of the Spanish government to achieve the required sustainable and structural improvement in general government finances, given the limits of central government control over the regional governments' finances as well as the background of only moderate economic growth in the short to medium term.
"Throughout the evolution of the economic crisis in Europe, the nation that has loomed as the linchpin to all of this has been Spain; The crisis in Greece and in Ireland can be managed to some degree although even these states have placed an immense strain on the euro zone," said Chris Kuehl, NACM's economic advisor and director of Armada Corporate Intelligence. "The Spanish situation has always been far more serious due to the size and influence of the nation in Europe as a whole...and the crisis in Spain has added to the overall nervousness in the market as a whole. It has been a rough few weeks for bond investors, and that does not bode all that well for the efforts in Europe as a whole.
Greek and Spanish officials, who have regularly bashed the ratings agencies for their own poor track record of ratings in the run-up to the global economic downturn as well as what it perceives as obvious conflicts of interests in their decision-making, again responded to Moody's with vitriol. They've characterized the latest downgrade with words such as "incomprehensible" and "hasty," respectively, much like they did following downgrades that preceded talk of bailout packages, one of which going to Greece, rife with unpopular austerity demands in 2010.
"The ratings agencies are not too popular these days," said Kuehl, who will be speaking during two education sessions at NACM's 2011 Credit Congress in Nashville. "During the boom years they seemed to lose their ability to remain objective and consistently rated companies, banks and countries higher than now seems justified. These days, there seems to be a new attitude that reinforces strict interpretation. The ratings now are deemed too harsh by some."
For more information Kuehl's appearances and others at NACM's 2011 Credit Congress, visit http://creditcongress.nacm.org/.
Brian Shappell, NACM staff writer