Amid Financial Crisis, Spain's Credit Rating Cut

Fitch Ratings cut Spain's credit rating on Friday, saying the government's efforts to reduce debt will weigh on economic growth in coming months - another blow to Prime Minister Jose Luis Rodriguez Zapatero's efforts to shore up confidence in state finances.

The ratings agency cut the country's rating one notch from AAA to AA plus, saying Zapatero's efforts to close the budget deficit "will materially reduce the rate of growth of the Spanish economy over the medium term."

The ratings agency decision echoes concerns from economists that efforts to cut state debt will also withdraw stimulus from the economy and hinder growth. Lower growth in turn means gathering less in tax revenues.

Spain currently has an unemployment rate of 20 percent and is struggling with large deficits and the hangover from a collapsed housing and real estate boom like that in the U.S.

On Thursday, Zapatero's austerity package freezing pensions and cutting civil servants' wages passed by just one vote in Parliament. The narrow margin underscored the government's shaky position in parliament and the depth of resistance by unions to austerity measures.

The measures - which aim to cut spending by euro15 billion ($18.4 billion) this year and next and reduce Spain's oversized deficit - have been welcomed by the European Union and the International Monetary Fund but much criticized at home as a major reversal by the Socialists. The cuts are designed to reassure markets that Spain's government debt problems won't mushroom into a Greek-style crisis.

[Harden_Tar]

Here we go. The second domino to fall. Europe is in for some bad times and I hope they don't drag us too far down with them.