Moody’s on Spain: It’s not Portugal, and it’s not Greece

Discussion in 'Economics' started by ASusilovic, Jul 1, 2010.

  1. On Wednesday, Moody’s warned that it was reviewing Spain’s sovereign rating for possible downgrade. FT Alphaville spoke to Kristin Lindow and Naomi Richman, senior vice presidents with the rating agency’s sovereign group. Our questions are in bold.

    Both Fitch and S&P have long since stripped Spain of its triple-A. What explains Moody’s timing on that front?

    Moody’s: We are not following a schedule that our competitors follow necessarily, we aren’t in competition with each other in that respect. We do our own analysis, and when we think it’s appropriate to move, we move.

    What in particular were you concerned about, what prompted you to move at this point?

    Moody’s: We’re emphasising growth, the large fiscal deficit and the rapidity with which the debt has run-up. Spain still has a manageable debt level currently, but if it were to continue on its current trajectory, that would take them to levels where they weren’t compatible with the triple-A.

    In your statement you said the review would likely be concluded within the next three months. What will you be looking at during that time?

    We’re looking at how quickly the [austerity measures] take effect in terms of bringing the debt down. We wouldn’t expect the measures themselves to start taking hold within that period, but will be looking at the composition of the labour market reforms and the budget proposals for 2011, and then extrapolating as a consequence of that.

    They’re trying to do a lot in a relatively short period of time, after having postponed some of these measures until now. It’s not out of the question that they can be successful. The market hasn’t paid much attention to how effective the compliance has actually been to the government targets.

    What about political risk? How much emphasis do you place on the possibility of Greek-style civil unrest affecting the ability of Spain’s politicians to deliver on their proposals?

    Spain does have a minority government, and there has been a sense of crisis, primarily because of the market reaction. But we’re seeing a tremendous amount of unanimity from all sides regarding what has to be done, so that’s very encouraging.

    There’s almost a culture in Greece of having those kinds of demonstrations. We wouldn’t be surprised if there’s some kind of similar reaction in Spain, but the political tone and consensus has been encouraging.

    What’s the view of the sovereign group regarding the risks posed by Spain’s banks, particularly the cajas?

    We think the FROB has been more than adequate to deal with the problems as we expect them to be identified. We don’t expect that the situation will be worse than what the FROB can handle, in fact we expect it to be much less.

    You mentioned that you’d be keeping an eye on how investors react to Spain’s measures. What are you looking at?

    The reason we’re concerned about investor reaction to Spain is that what’s happening with the yield [on Spanish sovereign debt] has a direct impact on their fiscal challenge as the interest rate on their debt rises.

    We’ve been emphasising all along that Spain is different from Portugal is different from Greece. It’s very important to make those distinctions. Markets overshoot, this is just another example of that.

    It´s exactly the timinig of these moves, morons, that makes you guys non credible...:mad:
  2. Daal


    In a few months we will hear "Ireland is not Spain, Italy, Greece or Portugal" then "UK is not Ireland, Spain, Italy, Greece or Portugal"
  3. You are forgetting the former eastern block.