Moody's warns it may downgrade Spain
Posted by Colin Barr
December 15, 2010
It looks like Europe is about to get interesting again, and not in a good way.
Moody's warned Wednesday it may downgrade Spain's credit rating, citing its heavy refinancing needs in coming months, the weakening state of its small banks and the debts run up by local governments.
The comments sent European stocks modestly lower and weakened the euro against the dollar. It fetched $1.33 Wednesday morning, down from $1.34 a day earlier.
The move comes as investors continue to edge away from the bonds issued by weaker European governments such as Spain and Portugal on fears that the euro zone will break apart. Spain sold 2.5 billion euros in bonds on Tuesday, but had to pay a full percentage point more than it did a month ago for the privilege.
Rising borrowing costs threaten to strangle any chance of a recovery in an economy already dazed by 20% unemployment in the wake of a housing and construction boom that was perhaps, proportionally, three times the size of the one in the United States.