Will S&P Downgrade Bring Spain to the Brink of Bailout?

The S&P downgraded Spain’s ranking Wednesday evening, October 10th. “The outlook on the long-term rating is negative.” The S&P said in their document concerning the downgrade decision.

The question is will this event bring Spain to the Brink of Bailout?

Spain’s S&P credit rank was downgraded to “BBB-” from “BBB+” Wednesday.

The S&P report also said, “The deepening economic recession is limiting the Spanish government’s policy options.”

One option that remains is the “b”-word, the word that has been used for months with no follow-through, it is almost a cliché when used in the context of the Spanish economy.

The S&P listed numerous reasons on why it is downgrading Spain these 2 notches. One being that Spain’s recent budget is too optimistic. “In our opinion, the 2013 state budget is based on overly optimistic growth assumptions” said the report.

After taking this hit, Spain may feel like they have no other option but to ask for a Sovereign Bailout.

Will Spain plead for a bailout in the near future? The S&P downgrade seemed to make the EUR shoot up, maybe because of expectations of a Spanish Bailout.

The well known fact that Spain unemployment rates have been steadily rising makes it clear that Spain has to change something.

In 2007 Spain had unemployment rates around 8%. Currently close to 25%, it didn’t take long for Spain to crumble.

Forex

If Spain does ask for a bailout, it’s probable that the European Stability Mechanism will be responsible for funding.

If Spain is rescued, the euro zone could be moving into closer fiscal union. This might be positive news for the Euro.

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