Fitch: Spain's Rescue Package Could Stabilize Rating
Spain's 100 billion euro ($125 billion) bank rescue may help stabilize the country's sovereign rating, which could nonetheless come under more pressure if the crisis worsens, credit agency Fitch said on Tuesday.
Asked if the weekend's aid package had implications for Italy's rating, Fitch's sovereign ratings director Ed Parker said: "I wouldn't see it as having direct impact on other countries.
"The Italian banking sector is very different from Spain, they didn't have a credit boom and property bubble in a way that Spain did so we don't see the (same) kind of bank sector problems in Italy."
All in all, the euro zone would probably "muddle through" its crisis, but policymakers needed to act soon to stave off a potential break-up of the currency area that could see even core states' ratings cut to low investment grade, he said.
Presenting five scenarios for the bloc's future, Parker said a disorderly full break-up was the worst case.
That would lead to several sovereign defaults, EU wide depression, the downgrade of AAA-rated nations to low investment grade, and perhaps even the break-up of the EU itself.
Other scenarios included an exit of peripheral nations like Greece, a quasi-fiscal union, and the creation of a core euro zone with Germany leading the way.
"Ultimately our base (scenario) is for the euro zone to muddle through its problems and survive," Parker said.
The bloc had a track record of acting when absolutely necessary, and needed to take action.
"If we don't see some sort of light at the end of the tunnel pretty soon, the risk of some sort of (euro zone) break-up will start to rise and rise," he said.
SPAIN PRESSURE
Fitch last week cut its sovereign rating on Spain by three notches to BBB and placed the country on negative outlook, meaning a further downgrade could come in coming months.
Spain's bank rescue announced on Saturday was just one factor in determining the country's sovereign rating.
"The package that we've now seen can help stabilize ratings at the current level, but clearly that's just one aspect of the risk facing Spain and the current rating," he said.
"If we see further worsening (in Spain's performance) or more general intensification of the euro zone crisis, then further negative news could lead to further negative rating action. But for now the news that's out there is baked into our current rating," Parker said on the sidelines of a conference.