Fitch Says No Downgrade If Spain Seeks Full Bailout

Fitch Ratings said on Friday it would not downgrade Spain’s credit rating if it seeks a full-blown sovereign bailout in addition to an existing banking rescue.

A Spanish request for eurozone bailout funds to buy Spanish government bonds “would not prompt negative rating action from Fitch,” it said, two days after Standard & Poor’s gave a similar reassurance.

Spain’s eurozone partners agreed in June to lend up to 100 billion euros ($124 billion) to salvage the nation’s banks, buckling under record bad loans built up since a 2008 property crash.

But investors increasingly believe that the country will be forced to request a full bailout for its economy as Spain struggles to borrow money on the international markets at affordable rates.

The nation faces a crunch in October with major debt payments due: short-term debt repayments of 9.02 billion euros and long-term repayments of 24.158 billion euros.

Speculation is mounting that Spain may ask the eurozone’s European Financial Stability Facility or incoming European Stability Mechanism to buy its newly issued bonds so as to bring down its spiralling borrowing costs.

“Sovereign bond purchases by the EFSF/ESM, especially if supported by secondary market purchases by the ECB, would significantly reduce the risk of a self-fulfilling liquidity crisis,” Fitch said.

This would give Spain affordable market financing and ease pressure on its sovereign ratings, the agency said.

“Such external support could provide Spain with the breathing space to implement its ambitious fiscal and economic reforms,” Fitch added.

Agence France