Spain's Credit Rating Cut

Considering the vastness of the debt problems facing numerous European countries, this is hardly a surprise. The problem now is that European leaders are playing whack a mole with economic problems. One pops up, they smack it down, another pops up they smack it down.

May 29 (Bloomberg) -- Spain lost its AAA credit grade at Fitch Ratings as Europe battles a debt crisis that’s prompted policy makers to forge an almost $1 trillion bailout package for the region’s weakest economies.

The ratings company cut the grade one step yesterday to AA+ and assigned it a “stable” outlook, according to a statement from London. Spain has held the top rating at Fitch since 2003. Standard & Poor’s lowered Spain’s ratings to AA on April 28.“The process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term,” Brian Coulton, Fitch’s head of Europe, Middle East and Africa sovereign ratings in London, said in the statement.

Spain is struggling to cut the euro region’s third-largest budget deficit as the economy, still reeling from the collapse of a debt-fueled construction boom, is forecast to contract for a second full year. Prime Minister Jose Luis Rodriguez Zapatero, who has angered traditional allies by cutting public wages and freezing pensions, has failed to convince investors he can put the finances back in order as borrowing costs continue to surge.U.S. stocks fell after Fitch’s announcement and the euro weakened to $1.2280. The currency used by 16 European nations has slumped 19 percent against the dollar in the past six months on concern that indebted countries won’t be able to rein in their spending.

‘Still a High Rating’

“I would like to emphasize that it’s still a high rating,” Soledad Nunez, the director of Spain’s Treasury, said in a telephone interview. “The agency recognizes that public finances are strong and the government’s commitment to fiscal reform.”

There comes a point where printing billions if not trillions of dollars simply doesn't work anymore because of lack of confidence, we are mot there yet but Europe appears to be running out of options. As I said yesterday, the Tea Parties have been vindicated.