Guadalajara -
In the face of unemployment stats punching through the clouds, negative economic growth and huge sovereign debt, the American credit rating agency Standard & Poor's has downgraded Spanish debt instruments (bonds) two full steps, to BBB-. The rating is more bad news for the country, which is in an economic free fall with no parachute in reach.
U.S. and foreign bonds evaluated by American credit agencies are typically rated AAA, AA, A, BBB, BB, B, CCC, CC and C. Bonds already in default are rated D. Any bond rated below BBB- is usually considered a speculative investment, or junk bond.
The consequences for the issuer are significant. In order to attract investors junk bonds must offer a higher interest yield, which means the issuer incurs yet more long term indebtedness. Institutional investors, such as banks, insurance companies, and retirement and pension funds, are generally prohibited by internal rules and regulations from purchasing or holding junk bonds. Worst of all is the harm done to the financial reputation of the bond issuer, especially when the obligations represent sovereign debt. Junk bonds may imply insolvency, even bankruptcy, and often they lead to just that.
Spain is in a prolonged recession, and the economic data cited by S&P in downgrading its national debt clearly demonstrates so. The country's gross domestic product (Producto Interno Bruto, or PIB) is estimated to recede 1.8% this year (using 2011 as the benchmark), and 1.4% in 2013. Those are negative numbers, in other words. By way of comparison, if the United States is very lucky it may see economic growth of 2% in 2012, although 1.5% is more probable. Mexico's economy is firing nicely at 3.5-4% expansion of PIB, with the potential for higher postings in 2013, according to the director of its central bank.
"The downgrading reflects what in our opinion are ever greater risks in Spain's public finances, due to growing economic and political pressures," S&P said in a press release.
The agency noted that the deep recession limits the government's options as it desperately looks for ways to brake the cascading national economy, and fashion a budget acceptable to sharply divergent interests. In recent weeks Spain has experienced rising social discord, leading to protests and street riots in Madrid and other cities.
"Spain's debt objectives will be difficult to attain given the continued collapse of the job market," noted S&P. "We believe the government's determination will be severely put to the test by those sectors of the country most affected by its policies and plans."
Oct. 18 - A second general strike in Greece in three weeks has lead to one death and several injuries in Athens. The subject, as always, is government austerity measures in the essentially broke nation.
Oct. 22 - Spain's economy continues to contract, which in turn was a major factor behind the NYSE's loss of about two percent of its value today. An Associated Press report noted "Spain is in its second recession in three years with near 25 percent unemployment. The country is one of the focal points in Europe's financial crisis: if Spain defaults on its debts or needs a full-blown bailout, the finances - and credibility- of the 17-country group that uses the euro could be stretched to breaking point."
Oct. 26 - Overall unemployment in Spain has now topped 25%, according to reports released today. Fifty-two percent of Spanish youth are jobless. Tens of thousands have abandoned the country, in search of opportunities elsewhere. It's likely they will live out their lives in more prosperous nations.
Feb. 4, 2013 - The unemployment picture in Spain continues to darken. An additional 132,000 people reported themselves jobless in January, up 2.72% from December. The Ministry of Employment and Social Security reported today that 4.98 million people are now unemployed, excluding those who are no longer actively seeking work or who have abandoned the country in search of opportunities abroad. As of Dec. 31. 2012, 26.02% of the Spanish work force was unemployed. The highest jobless rate was among workers 25 and under - more than 55% - and persons of foreign origin, 36.53%. Many of the latter are of Latin American heritage, and have returned to countries they scarcely know.
Mar. 4 - Spanish unemployment rose again in February, with over five million people now jobless. The stats are the worst in eight decades, as the European economic crisis continues.
Apr. 24 - In the first three months of 2013 Spanish unemployment rose to 6.2 million, representing 27.16% of the country's active labor force.
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