Spanish banks could need state aid and the country itself suffer further downgrades to its sovereign rating if its debt troubles continue to escalate, the head of European ratings at Standard & Poor's said on Friday.
In an interview with Reuters Insider television, Moritz Kraemer, head of the firm's EMEA sovereign ratings team, said Spain's funding-starved banks could become a burden on the state if the country's deterioration continued.
"It is not going to be an easy job for most Spanish banks to find funding in the market."
"So the state may be called for at some point but that, for now at least, is something the Spanish government seems to be unwilling to contemplate."
If Spain were to need aid from its European neighbors, Kraemer said it would be better to take it under the current EFSF bailout fund rather than its soon-to-be-successor ESM, as the ESM's 'preferred creditor' status could rattle bond markets.
S&P's two-notch downgrade of Spain on Thursday was the latest in a blizzard of rating cuts for euro zone states by the credit rating agency over the last few years.
Kraemer said that if Spain's debt levels jumped more than currently anticipated by S&P, further downgrades to its rating were likely. It now rates the country BBB+ with a negative outlook.
Turning to the role of the European Central Bank, Kraemer said actions like its ultra-cheap three-year cash offers were not a cure for the crisis and that it could not be ruled out that the bank would restart its purchases of government bonds.