Both Spain and Cyprus see their ratings slashed

STRUGGLING Eurozone members Spain and Cyprus both saw their credit ratings slashed last night as Moody’s warned that they had been effectively shut out of international markets.

Spain’s government bond rating was cut to just one notch above junk status – to Baa3 from A3 – with Moody’s saying its banking bailout would take years to recover from.

The credit rating agency, which said it could still lower Spain’s rating further, cited a triple whammy of its up to €100bn banking bailout, “very limited” access to international debt markets and the weakness of its economy for the move.

Moody’s decision follows that of rival Fitch which cut Spain’s rating by three notches to BBB last week.

Moody’s also cut its credit rating on Cyprus’ sovereign debt by two notches last night, citing rising risks of a Greek exit from the euro currency and the expected support the government will have to give to its ailing banks.

Moody’s rating cut, to Ba3 from Ba1, is based on the assumption that Cyprus will need to provide support to its banks in excess of a prior estimates of five to 10 per cent of GDP.

Fears over a euro exit by Greece could lead to faster withdrawals of deposits from Cypriot banks’ Greek branches, thereby straining liquidity, Moody’s said.

The rating cut came as Cyprus yesterday indicated it is looking to Russia and China as well as Europe for the best possible bailout terms. Speculation is mounting that an international bailout for Cyprus is imminent, with it seeking as much as €4bn – over a fifth of its economy.

Deputy Europe minister Andreas Mavroyiannis said yesterday that €1.8bn was needed within the next few weeks to recapitalise Cyprus Popular Bank but that other banks may need money too. He said Cyprus would borrow a maximum of €4bn.

The country is seeking ways to avoid tapping the EU because of what Mavroyiannis described as the “negative connotation” that comes with it.