Negative Spain outlook sparks new worries

Spain’s credit rating was cut to
Aa2 by Moody’s Investors Service, which said the cost of shoring up the banking
industry will eclipse government estimates.

Spanish lenders will need as much
as $69 billion to meet new capital requirements, Moody’s forecast, more than
double the 20 billion euros seen by the government.

The risks to public finances are
“skewed to the downside,” the company said in a statement.

 The outlook is “negative,” suggesting more rating
cuts are under consideration.

Spain has taken unprecedented
measures to avoid following Greece and Ireland into a bailout, implementing the
deepest budget cuts in at least three decades.

 As European leaders negotiate a reinforced rescue
effort, Spain is tightening capital requirements for banks in a bid to show
investors that its lenders can weather a fourth year of economic slump with an
unemployment rate over 20 per cent.

“This will put extra pressure on EU
policy makers when they meet later in the month to offer some kind of credible
solution to the crisis, including raising the funds available to back countries
which at least at this stage do not have a real solvency problem, such as
Spain,” said Sebastian Paris-Horvitz, chief market strategist at HSBC Private
Bank Suisse SA.

As Spain tries to convince
investors that struggling savings banks won’t overburden its public finances,
European Union leaders have set a 25 March deadline to approve a package of measures
to end the sovereign debt crisis.