Spain's credit rating close to 'junk' status after S&P downgrade

S&P, an American financial services company, has placed a negative outlook on Spain due to the country’s failure to show how it is bringing itself into line with Eurozone policies.

The S&P statement said, “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.”

The downgrade brings Spain to just one notch above “junk” status, which means that the company feels that the country is non-investable.

The International Monetary Fund (IMF) and Spain’s Central Bank recently cast shadows on Spanish Prime Minister Mariano Rajoy’s budget. Each organisation felt that the actions taken in the budget were based on optimistic estimations of Spain’s economic situation.

The downgrade is having a knock-on effect for the euro as whole, highlighting how fragile the situation in the Eurozone is. The fate of one Eurozone member state has ramifications throughout the entire region.

Kathy Lien, managing director at BK Asset Management, said, “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.”