RATING AGENCY Moody’s Investors Service cut its rating on Spanish government debt by three notches last night to Baa3 from A3, saying the newly approved euro zone plan to help the country’s banks will increase the country’s debt burden.

Moody’s, which said it could lower Spain’s rating further, also cited the Spanish government’s “very limited” access to international debt markets and the weakness of the country’s economy.

The rating is on review for possible further downgrades, which could come within the next three months.

A spokeswoman at Spain’s economy ministry in Madrid declined to comment.

“The Spanish economy’s continued weakness makes the government’s weakening financial strength and its increased vulnerability to a sudden stop in funding a much more serious concern than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years,” Moody’s said in a statement.

Unemployment in Spain is running at over 24 per cent and is even higher among those under the age of 25.

Euro zone finance ministers agreed on Saturday to lend Spain up to €100 billion to shore up its teetering banks, and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.

Moody’s analysts said that the loans from the European Financial Stability Facility or from its successor, the European Stability Mechanism, would “further increase the country’s debt burden, which has risen dramatically since the onset of the financial crisis”.

Moody’s rating puts it one notch above junk status.

Standard & Poor’s rates Spain two notches higher at BBB-plus with a negative outlook.

Fitch Ratings cut Spain’s rating by three notches on June 7th to BBB, one notch above Moody’s, and put a negative outlook on the credit.

The yield on Spain’s 10-year reached a euro-era record of 6.834 per cent on Tuesday but its borrowing costs eased somewhat yesterday.

Scepticism over the €100 billion bailout for the country’s banks has driven investors away from Spanish debt.

Borrowing costs of over 6 per cent are seen as unsustainable with analysts considering it the level above which a sovereign can no longer rely on the bond markets for funding.

Earlier this week Spain’s treasury reiterated its determination to continue tapping private debt markets for its day-to-day funds. – (Reuters)