Crisis spreads as Spain’s rating is cut, too

Globe Wire Services / April 29, 2010

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BERLIN — Europe’s debt crisis spread to another country yesterday as Standard & Poor’s downgraded Spain’s credit rating, even as Germany grudgingly moved closer to bailing out Greece.

Chancellor Angela Merkel said Germany would speed up the approval process and could have its share of a $60 billion joint bailout with other euro countries and the International Monetary fund rushed through Parliament by next week.

That would beat a May 19 deadline when Greece has debt coming due.

“It’s absolutely clear that the negotiations between the Greek government and the European Commission and the IMF have to be accelerated now,’’ Merkel said.

President Obama and Merkel yesterday discussed “the importance of resolute action by Greece and timely support from the IMF and Europe’’ to address Greece’s problems, the White House said in a statement. White House spokesman Bill Burton said earlier that the Greek crisis is “of great concern.’’

Greece’s budget deficit has driven away investors, and spending cuts have failed to resolve the crisis.

Spain’s credit rating was cut one step yesterday to AA, putting it on a par with Slovenia’s. That followed downgrades to Greece and Portugal Tuesday.

Merkel’s remarks and a promise from Finance Minister Wolfgang Schaeuble that the aid package could be signed, sealed, and delivered — provided Greece promised to adopt tough austerity measures — helped shore up confidence in the markets.

But the downgrade for Spain and a lack of clarity about how much money Greece will need unsettled investors. The IMF’s managing director, Dominique Strauss-Kahn, would not confirm reports he had said Greece would need more than $158 billion over several years.

Merkel’s government has balked at handing over money to a country that has admitted it massaged its debt figures for years. Merkel stressed that Germany is still insisting Greece commit to cutbacks. “Germany will make its contribution but Greece has to make its contribution,’’ she said.

The downgrade for Spain was an ominous new blow.

Greece and Portugal, until yesterday the focus of alarm, are relative economic minnows; Spain’s economy is four times the size of Greece’s. Its overall debt burden is fairly modest, but Spain is running a high budget deficit.