Spain hit by another downgrade

October 19, 2011

As we explained earlier this week, European leaders are in the process of negotiating an expanded bailout fund for struggling nations as Europe’s debt crisis nears a breaking point. Currently 440 billion euros, the fund could be increased to upwards of 1.5 trillion euros.

Recent announcements from credit ratings agencies have only made the discussions more urgent. Moody’s recently warned of a possible downgrade to France’s top Aaa rating. On the heels of that warning, Moody’s downgraded Spain’s debt by two notches “citing fading growth prospects.” The move follows earlier downgrades from Fitch Ratings and Standard & Poor’s.

Meanwhile, French President Nicolas Sarkozy travelled to Germany to work out a dispute between Paris and Berlin on how to expand the bailout fund. The disagreement must be worked out quickly as the three-pillar plan is set to be unveiled this Sunday. The stakes could not be higher. As German Chancellor Angela Merkel warned, “If the euro fails, Europe fails…”

Unfortunately the risk doesn’t stop at Europe’s borders. Whatever happens there has, and will continue to, send ripples across the global economy.

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