Spain has played its bailout cards close to its economic chest until now. Standard & Poor downgraded the nation’s credit to near junk status Wednesday, making international lenders’ propositions all but impossible to turn down.
The cash-strapped country saw its credit rating reduced to BBB, or non-investment grade, which will increase the cost of borrowing and scare many government bond investors away, according to a CBS Money Watch report.
S&P cited a severe and worsening depression in Spain, social unrest and the government’s sluggish responses as “potentially raising the risks to Spain’s rating.”
"It would appear that when it comes to the rating Spain is a bit between a rock and a hard place," said Gary Jenkins, managing director of Swordfish Research.
Violent protests, union strikes and civil unrest over austerity have paralyzed Madrid on occasion and unemployment coupled with cuts in benefits reportedly have citizens on edge.
The European Central Bank (ECB) proposed a plan to buy unlimited amounts of debt from struggling European countries last month. But to ditch their bad debts, participating eurozone nations must apply for a eurozone bailout in advance, something that Prime Minister Mariano Rajoy has thus far not been willing to do.
Meanwhile, Rajoy has implemented cutbacks in labor and other measures of austerity in an attempt to bring down Spain's deficit and console wary investors.
More austerity lurks in the ECB bailout loans, but with Spain’s credit in steep decline, unemployment at epic levels and a depression in play, decisions on how to fund the government are imminent.