Standard & Poor's lowered their rating of Spanish debt to just above junk-bond status, which sparked IMF leader Christine Lagarde to ask European politicians to act quickly and buy bonds with funds made available through the European Central Bank (ECB).
This is a direct message that the Spanish government should not downplay. They should also take S&P's rating cut seriously and not take refuge in the knowledge that the IMF and the euro zone are content with the reforms that are under way. Such pats on the back are standard components of diplomatic doublespeak, but investors are singing a different tune. Through the ratings agencies, they clearly lack confidence in Spain. If our debt drops to junk-bond status, credit markets will close off and the situation will worsen. The Deputy Prime Minister is mistaken when he says that the S&P rating doesn't align with how people perceive our debt and our economy, because he ignores that our difficulties getting financing make it more likely that we need a bailout. International investors and markets don't have much faith in Spain's budget predictions. That said, the IMF has erred several time about budgets, too. Lagarde and the EU are both sending signals that Spain needs more time to balance its deficit and regain confidence.
The government should not turn deaf ears to advice from Europe without intensifying its reform program, particularly within the public sector, in the shortest amount of time possible.
