Two Key EU Credit Upgrades

Two nations that perhaps most defined the European recession continue dig themselves out of significant holes. And two of the so-called “big three” have done well enough to force credit ratings agencies took notice Friday.

Spain, one of the four biggest economies in the European Union and one that had arguably the hardest fall from grace, received something of a rarity for the country in recent years: a credit rating increase. Standard & Poor’s Ratings Services raised the Spanish long- and short-term foreign and local currency sovereign ratings  of “BBB/A-2” from “BBB-/A-3”. The outlook also has been moved to stable. S&P noted that the upgrade “reflects our view of improving economic growth and competitiveness as a result of Spain's structural reform efforts since 2010, including the 2012 labor reforms…We also expect that recovering employment will contribute to improvements in the country's fiscal position and the stabilization of financial system asset quality.” One key factor helping Spain is the rebound of its exporting demand of late. Still, some concerns remain, such as the nominal household earnings of its citizens, younger demographics that have long been out of the productive workforce and high levels of public indebtedness, according to S&P. But the future looks much brighter now for Spain than even a year or less ago.

On the same day, Fitch upgraded the long-term foreign and local currency issuer default ratings, the first domino to fall in the European downturn and a case study in economic problems, to “B” from “B-,” with a stable outlook. The issue ratings on Greece's senior unsecured foreign and local currency bonds were also upgraded, said Fitch in a statement.  The upgrade was driven by Greece’s ability to reach some of the key targets on spending/budgetary concerns set by the EU and International Monetary Fund, the noticeable reduction in near-term sovereign liquidity risk and “remarkable” deficit reductions.

“With the most challenging phase of Greece's adjustment behind it, the rating is becoming less sensitive to policy holdups and political crises,” Fitch said in its release.

- Brian Shappell, CBA, CICP, NACM staff writer

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