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Summary Moody's also credited the ongoing efforts to restructure the Spanish banking sector.
Moodys gave Madrid critical breathing room Tuesday in its efforts to sort out its economic problems, holding the countrys debt rating unchanged at Baa3, one step above junk grade.But the US agency assigned Madrid a negative outlook, maintaining a threat to downgrade the country if conditions deteriorate.Moodys cited the European Central Banks willingness to buy Spanish government bonds to stabilize its borrowing rate as well as the governments commitment to implementing fiscal and structural reforms necessary to improve its finances.Moodys also credited the ongoing efforts to restructure the Spanish banking sector and strengthen the banks.In summary, Moodys believes that the combination of euro area and ECB support and the Spanish governments own efforts should allow the government to maintain capital market access at reasonable rates, providing it with the time it needs to stabilize public debt over the next few years.The maintenance of market access is critical because the risk that some form of burden-sharing will be imposed on bondholders is material for those countries that rely entirely or to a very large extent on official-sector funding for an extended period of time.But Moodys warned that the risks to the countrys situation remain skewed to the downside, and that the rating could go lower without progress on setting the countrys finances on a sustainable footing.Shocks at the euro area level could also have negative repercussions on Spains rating, for example in the absence of concrete progress in reforming the euro areas fiscal, economic and regulatory institutions.The possibility of Greece exiting the euro area continues to constitute a major event risk for all the weaker euro area member states.The move came a week after Moodys rival Standard & Poors dealt Spain a two-step downgrade to BBB-, S&Ps lowest grade before junk level.Cutting Madrids grade to junk status could send a large class of bond investors fleeing the countrys debt paper, and effectively forcing the cost of Spains borrowing shooting higher.
