Moody’s Demotes Cataluña and Murcia Regional Governments to Junk Bond Status

You have to wonder, if credit agencies like Moody’s didn’t seem to want to make things a lot worse for Spain all the time by their constant ratings lowerings, things in the Spain might be a lot better. Case in point, Moody’s latest reducing of scores for the regional governments of Cataluña and Murcia — reductions that are so bad, Cataluña and Murcia are now at junk bond status.

Cataluña and Murcia regional governments were joined by Andalucía and Extremadura, who had their scored reduced yesterday to just above junk bond status. Valencia and Castilla-La Mancha are already at junk bond level.

As for Cataluña and Murcia’s junk bond status, Moody’s said one of the big reasons they were downgraded was, even though the regional governments had provided a reduction in spending on education and health in 2011, these cuts had not occurred to the extent that were budgeted.

Moody’s said they believe that structural reforms in health and education, when implemented, will help to reduce the regional deficit in the medium term, but that certain measures will be complicated to implement and their effects on the accounts of this year will be limited. ‘Accordingly, these four regions will continue depending on increasing their debt to cover their large fiscal imbalances’, they added.

Meanwhile, protests continue to occur in Cataluña and Murcia against the cuts in education and health, so whether they actually will be implemented is still not known. You have to wonder too, what’s wrong with a ratings agency that thinks cuts in education and health are going to help a region’s long-term stability?