• Standard & Poor's is lowering its long-term sovereign credit rating on the Kingdom of Spain by two notches to 'A' from 'AA-', and its short-term rating to 'A-1' from 'A-1+'.
  • The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the European Economic and Monetary Union (eurozone), with which Spain is closely integrated.
  • The downgrade also reflects our view of external financing risks in the private sector, which we believe could constrain growth and hamper the government's efforts to narrow the fiscal deficit.
  • The outlook on the long-term rating is negative.

Rating Action

On Jan. 13, 2012, Standard & Poor's Ratings Services lowered its long- and 
short-term sovereign credit ratings on the Kingdom of Spain to 'A/A-1' from 
'AA-/A-1+'. At the same time, we removed the ratings from CreditWatch with 
negative implications, where they were placed on Dec. 5, 2011. The outlook is 

Our transfer and convertibility (T&C) assessment for Spain, as for all 
European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting 
Standard & Poor's view that the likelihood of the European Central Bank 
restricting nonsovereign access to foreign currency needed for debt service is 
extremely low. This reflects the full and open access to foreign currency that 
holders of euro currently enjoy and which we expect to remain the case in the 
foreseeable future.


The downgrade reflects our opinion of the impact of deepening political, 
financial, and monetary problems within the eurozone. It also reflects our 
view of sustained external financing pressures from the private sector.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements 
from policymakers lead us to believe that the agreement reached has not 
produced a breakthrough of sufficient size and scope to fully address the 
eurozone's financial problems. In our opinion, the political agreement does 
not supply sufficient additional resources or operational flexibility to 
bolster European rescue operations, or extend enough support for those 
eurozone sovereigns subjected to heightened market pressures. 

We also believe that the agreement is predicated on only a partial recognition 
of the source of the crisis: that the current financial turmoil stems 
primarily from fiscal profligacy at the periphery of the eurozone. In our 
view, however, the financial problems facing the eurozone are as much a 
consequence of rising external imbalances and divergences in competitiveness 
between the EMU's core and the so-called "periphery." As such, we believe that 
a reform process based on a pillar of fiscal austerity alone risks becoming 
self-defeating, as domestic demand falls in line with consumers' rising 
concerns about job security and disposable incomes, eroding national tax 

Accordingly, in line with our published sovereign criteria, we have adjusted 
downward the political score we assign to the Kingdom of Spain (see "Sovereign 
Government Rating Methodology And Assumptions," published on June 30, 2011). 
This is a reflection of our view that the effectiveness, stability, and 
predictability of European policymaking and political institutions (with which 
Spain is closely integrated) have not been as strong as we believe are called 
for by the severity of a broadening and deepening financial crisis in the 

In addition to our view on the political factors, we lowered the ratings on 
Spain because we believe that the country's external financing costs may 
remain elevated for an extended period of time owing to its high gross 
external financing requirements. These higher costs stem from country-specific 
factors, regulatory changes, and an increased home-market bias, in our view. 
In particular, we see the following country-specific factors: structural 
savings-investment imbalances, high levels of short-term external debt, and 
front-loaded amortization requirements in the first half of 2012. Regulatory 
changes include prospective increases to bank capital charges for securities 
holdings and interbank placements, and uncertainty regarding the effectiveness 
of credit default swaps as hedging vehicles (see paragraph 76 of our sovereign 
rating criteria "Sovereign Government Rating Methodology And Assumptions").

The ratings on Spain remain supported by our view of its wealthy and 
relatively diversified economy, ongoing structural reforms, and moderate, 
albeit rising, net general government debt. Moreover, while increased 
borrowing costs are likely to cause rising interest outlays, the increase in 
the average interest rate on Spain's outstanding government debt, in our view, 
has not so far been a material additional burden on its budget.


The negative outlook reflects our view that there is at least a one-in-three 
chance that we could lower those ratings again in 2012 or 2013. We could lower 
the ratings again if:
  • Additional labor market and other growth-enhancing reforms are delayed or we consider them to be insufficient to reduce the high unemployment rate;
  • We see that the government does not undertake additional measures to broadly meet its budgetary targets in 2012 and 2013 of 4.4% and 3% of GDP, respectively; or
  • Further pressure from the private sector leads us to reassess the sovereign's fiscal performance, particularly if it were to result in an increased need for additional capital injections from the state or similar interventions.
Conversely, the ratings could stabilize at the current level if budgetary 
targets are met and if risks emanating from contingent liabilities subside.

Related Criteria And Research

All articles listed below are available on RatingsDirect on the Global Credit 

Related Criteria
Related Research

Ratings List

Spain (Kingdom of) 
                                 To                    From 
Sovereign credit rating          A/Negative/A-1        AA-/Watch Neg/A-1+


Standard & Poor's will hold a teleconference on Saturday Jan. 14, 2012 at 3:00 
PM UK time. The teleconference can be accessed live or via replay and by phone 
or audio internet streaming

The call will begin promptly at 3:00 p.m. 

Passcode: 2705831 
For security reasons, the passcode will be required to join the call. 

Country        Toll Numbers            Freephone/Toll Free Number
AUSTRIA        43-1-92-80-003          0800-677-861 
BELGIUM        32-1-150-0312           0800-4-9471 
DENMARK        45-7014-0239            8088-2100 
ESTONIA                                800-011-1121       
FINLAND        106-33-149              0800-1-12771 
FRANCE         33-1-70-75-25-35        080-563-9909 
GERMANY        49-69-2222-3198         0800-101-6627 
GREECE         30-80-1-100-0674        00800-12-6609 
IRELAND        353-1-247-5274          1800-992-870 
ITALY          39-02-3601-0953         800-985-849 
LUXEMBOURG     352-27-000-1351         8002-9058 
NETHERLANDS    31-20-718-8530          0800-023-4392 
PORTUGAL                               8008-12439 
SLOVAK REPUBLIC 421-2-322-422-16           
SPAIN          34-91-414-40-78         800-098-194 
UNITED KINGDOM 44-20-7950-6551         0800-279-3590 
USA            1-210-795-1143          866-297-1588 

Call notes: This call is to be recorded for Instant Replay purposes
UK TOLL #: +44-20-7108-6279
UK TOLL FREE #: 0800-376-9027

The instant replay will start at: Jan. 14, 2012 5:30pm UKT
The instant replay will end at: Feb-14-2012 11:59pm UKT

Passcode for replay: 7498
Restrictions may exist when accessing freephone/toll free numbers using a 
mobile telephone. 

To join the event:
URL: https://e-meetings.verizonbusiness.com
Conference number: 1297498
Passcode: 2705831 

To access the Audio Replay of this call, all parties can:
1. Go to the URL listed above.
2. Choose Audio Streaming under Join Events.
3. Enter the conference number and passcode. (Note that if this is a recurring 
event, multiple dates may be listed.)
Replays are available for 30 days after the live event. 

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.  Alternatively, call one of the following Standard & Poor's numbers: 
Client Support Europe (44) 20-7176-7176; London Press Office (44) 
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm 
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
Primary Credit Analyst:Frank Gill, London (44) 20-7176-7129;
Secondary Contact:Moritz Kraemer, Frankfurt (49) 69-33-99-9249;
Additional Contact:Sovereign Ratings;

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