Fitch slashes Spanish ratings

Fitch Ratings downgraded the creditworthiness of eight of Spain's regions. Asturias and Cantabria fell to BBB+, while Andalusia, the Canary Islands and Murcia fell to BBB. Catalonia fell to BBB-, meaning the debt it issues is only slightly above junk bond status.

In addition, the rating for the Basque region was cut to A+ while Madrid is now rated A-.

Noting that the regions' credit ratings were "still investment grade," Fitch said in a statement released Thursday that the move reflected "the negative economic and market environment, which has resulted in depressed fiscal revenues, and structural fiscal deficits."

The high debt of Spain's 17 autonomous regions and communities is said to be largely responsible for the country's large budget deficit of 8.9 percent in 2011.

Downward spiral

Spain's regional governments have suffered a slump in tax revenues due to the current recession, and soaring debt as a result of the collapse of a decade-long property boom in 2008.

In efforts to ease the fiscal pressure on the regions, the Spanish government approved on Friday the issuing of so-called "hispanobonos" - joint bonds issued by all regions and guaranteed by the state.

However, the central government in Madrid itself is struggling under a mountain of debt and has reduced funding for the regions by 1.3 percent under a current austerity plan.

As a result, Fitch said that the regions' negative operating balances were expected to come in at 6.2 percent in 2012, highlighting the need for "considerable additional efforts" to reduce deficits amid "increasing difficulty" to ensure access to long-term funding.

At the same time, Fitch warned that any non-compliance with the national austerity plan, as well as increasing liquidity pressure on the regions could lead to further negative rating action.

uhe/sgb (AFP, dpa, Reuters)