The official Spainish credit rating (issued by Fitch) was downgraded by 3 steps at once hitting the BBB level. This is obviously a move in right direction, as Spain is one of the countries that was highly over valuated by the leading credit rating agencies. The rating of Spain, calculated with my formula is BB, and is below the minimum investment level. So Fitch and other similar agencies have some more to change their calculations, before reaching a minimum level of reliability of their ratings.

The de facto 3 steps move down (according to Fitch rating practice) at once is a confession of bad methodology and too much human subjective intervention in calculating ratings. No one's rating can be changed so fast in either direction. Spain can not be an A-country yesterday and become a BBB-country tomorrow. The fundaments does not change so fast. In fact the real rating is even BB, and everything over it is a political bonus given by political dependent agencies. So being in fact BB, and being officially A, you can be lowered at any moment.

But is that a real rating and is that a serious evaluation?

At the moment Spain is resisting vigorously to ask for a help from EU and IMF. The fate of Greece is frightening the Spanish politics. But the resistance only makes the situation worse. The problem is not in EU and IMF, but is in the lack of reforms. Exactly this Spain tries to avoid. If IMF and EU come, they will require austerity reforms and being already kicked out of financial markets, the government will have no other choice that to make these reforms.

In fact if the government was eager to reform, it would not need EU and IMF bailout. If needed spending cuts were done, Spain would not have so big deficit and markets would not require so high interest rates on Spanish bonds. But when the main idea is to avoid the reforms, the result is just postponing them, and making more painful ones at the end.

From the other point of view, the rapid downgrade of Fitch rating may mean that Spain is planning to ask for a bailout in next few days. May be Fitch has received an insider info that Spain will ask and that is why the agency is hurrying to downgrade, so not to look funny evaluating at A-level a country that is almost defaulted. Just like the AAA of bankrupted Lehman Brothers in 2008 :)

Dobri
June 9th 2012