Standard & Poor’s cuts Spain credit rating to near junk status

Standard & Poor’s has slashed its credit rating for Spain to just above junk status and maintained a negative outlook as the country’s deepening economic crisis hampers the government’s efforts to restore financial stability.

The ratings agency cut Spain to BBB-minus from BBB-plus, putting the euro zone’s fourth-largest economy one notch above speculative grade or “junk” status, the Wall Street Journal reported Wednesday. 

"The capacity of Spain's political institutions…to deal with the severe challenges posed by the current economic and financial crisis is declining," S&P said. 

The downgrade – which brings S&P into line with Moody's Investors Service's rating for Spain – comes after euro zone finance ministers launched a $650 billion dollar rescue fund designed to help lower the borrowing costs of debt-stricken countries.

But the Financial Times reported it was unclear whether Madrid would seek an international bailout to support its banks and economy – a factor S&P suggested could push the country's credit rating into junk territory.

The Spanish government’s "hesitation" to request financial aid from the EU is "potentially raising the downside risks to Spain's rating,” S&P said, according to the WSJ.

Spain has been in recession since earlier this year, its second in three years, and the jobless rate is near 25 percent, which Reuters said are putting huge strains on the country's coffers. 

The government last month unveiled the country’s 2013 budget, which ordered ministries to cut spending by $51.3 billion. That followed $84 billion in cuts and taxes that were announced in July.

The tough austerity measures are fuelling social unrest across the country as Spaniards take to the streets on an almost daily basis to protest against the policies they say are simply exacerbating the country's economic woes. 

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