The ratings agency Moody’s has downgraded Spain’s rating to Aa2 with a negative outlook as it raised concerns over the Spanish government’s ability to improve its finances against a backdrop of only moderate economic growth.
It is thought that the cost of bank restructuring could considerably exceed current government projections.
Spain has the highest rate of unemployment in the eurozone at about 20% and is seen as one the region’s weaker economies. Its economy expanded by 0.2% in the fourth quarter of last year, but contracted by 0.1% over the whole of 2010.
The Spanish government is also under pressure from investors and other eurozone governments to reduce its budget deficit, which is also one of the highest in the region.