Spain's credit rating cut three notches | WPN World People News

Credit rating agency Fitch cut Spain's rating by three notches to BBB, even as its banking sector remains in the doldrums and investors continue to dump the country's bonds and shares.

"The much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support," Fitch said in a statement.

"Spain's high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece."

Fitch said Span will likely need anywhere from 40 billion euros to 100 billion euros to recapitalize its banking sector.

On Saturday, senior finance ministry officials from the euro zone and other EU countries are to discuss several options for financial aid for Spain in a telephone conference, Wall Street Journal quoted an official as saying Friday.

A conference call between euro zone finance ministers to decide the size of the aid could also be held, he added.

Collapsed property prices have left many of Spain's banks with huge bad loans. Its economy is expected to shrink 1.8% this year, and one out of four workers is unemployed.

Spain's 19 billion euro rescue of major bank Bankia SA made the situation worse.

"The Spanish economy faces severe obstacles to its ability to obtain external financing," Bank of Spain Gov. Miguel ngel Fernndez Ordez warned Friday at the presentation of the bank's annual report.

Spain has asked two independent consultants, Germany's Roland Berger and Oliver Wyman of the U.S., to go through its banks' books to find out how much extra capital is required to absorb the losses.

Spain's Deputy Prime Minister Soraya Senz de Santamaria said Friday that her government wouldn't ask for help until the IMF and external auditors have presented their analyses.

The IMF report is set to be out Monday.

Source:Spain News.Net