This is the big one as far as the PIGS are concerned. European banks are on the hook for billions of Spain’s debt. A Spain default will crush the European financial system. Is New York, Illinois and California (the NIC states) next on S&P’s hit list? I spent the day in London today talking with both business owners and common folk and they all told me that things in the U.K. are bad, real bad. I will be visiting Portugal and Spain over the next week and will get the low-down there personal.-Lou
Spain downgraded, Europe debt crisis widens
BERLIN (AP) — Europe’s debt crisis flared again Wednesday as Spain saw its credit rating lowered, just as Germany sought to reassure markets fearful over a possible Greek financial collapse by saying its share of a key aid package could be approved in the next few days.
Stock and bond markets had begun to regain their composure caused by stinging downgrades of Greece and Portugal the day before when the Standard & Poors ratings agency delivered more bad news by cutting Spain’s rating to AA from AA+.
The agency said Spain’s growth prospects were weak after the collapse of a credit-fuelled housing and construction bubble. The downgrade raises the ominous prospect of market contagion hitting another countrys’ finances.
Spain’s economy is much larger than that of Greece or Portugal and many think it’s simply too big to bail out if it gets into serious trouble, as Greece has, by facing unsustainable costs to borrow money on bond markets.
“We now believe that the Spanish economy’s shift away from credit-fuelled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed,” Standard & Poor’s credit analyst Marko Mrsnik said.
The announcement came after a day of market drops and turmoil following the downgrades of Greece — to junk status — and Portugal. Markets had been looking for a clear word from Germany that it would contribute its part of a Greek bailout package.
Greece has said it can’t pay debts coming due May 19 without euro45 billion ($59.8 billion) in bailout loans from the countries that use the euro as well as the International Monetary Fund, raising worries that the country is on the verge of financial collapse. But Germany, which would be the biggest single contributor with some euro8.4 billion, has insisted that Greece agree to a lasting austerity plan before it will approve its share of support.
Finance Minister Wolfgang Schaeuble said Wednesday that Germany could have its contribution to a Greekbailout package approved by parliament by the end of next week — the first solid timeline from Berlin aimed at easing the uncertainty that Greece might not get the money in time.
Schaeuble said that Germany was sticking to its insistence that Greece commit to new austerity measures in talks with the International Monetary Fund and the European Union, but that those could be concluded by this weekend.
If so, he said Germany’s support measures could be brought to lawmakers Monday and fast-tracked to be approved by May 7, next Friday.
“The stability of the euro is at stake. And we’re determined to defend this stability as a whole,” Schaeuble said following talks with IMF chief Dominique Strauss-Kahn and European Central Bank President Jean-Claude Trichet.
Strauss-Kahn and Trichet both stressed necessity for a speedy passage of the aid package for Greece.
“The faster, the better. Every day that is lost, the situation is getting worse,” Strauss-Kahn said.
Trichet and Strauss-Kahn both said negotiations with the Greek government should be concluded by this weekend.”I’m confident,” Trichet said.
German Chancellor Angela Merkel said later that as soon as Greece wraps up negotiations, then Germany can go ahead with its approval of financial help.
“Germany will make its contribution but Greece has to make its contribution,” she said.
Strauss-Kahn sought to allay fears that the money would never be seen again, telling reporters that “there is no program from the IMF that hasn’t been repaid.”
