Wall Street stocks slipped and the euro weakened against the dollar after Spain on Saturday lost its coveted AAA credit score from Fitch, the second ratings agency in a month to downgrade the country.
As the Spanish government battled to push through €15bn (£12.7bn) of spending cuts, Fitch cut its sovereign debt rating for the nation by a single notch from AAA to AA+.
The move, which followed a similar downgrade by Standard & Poor’s four weeks ago, fuelled fears of contagion throughout the eurozone.
Fitch’s analyst, Brian Coulton, said the challenges facing Spain in implementing austerity measures were behind the move: “Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates the economic adjustment process will be more difficult and prolonged than for other economies with AAA-rated sovereign governments.”
Economists said the development came as little surprise.
A week ago, Spain’s central bank was obliged to take control of a troubled regional savings bank, CajaSur, after a merger with a competitor fell apart.
The Spanish prime minister, José Luis Rodríguez Zapatero, won a parliamentary vote by a wafer-thin margin of a single vote on Thursday to implement sweeping budget cuts, including 5 per cent reductions to civil servants’ pay.