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Euro falls as Spain downgraded

world Updated: May 29, 2010 23:08 IST
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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.

The Guardian