* Only Germany, Luxembourg, Finland still AAA in euro zone
* Spain outlook raised, bailed-out Cyprus upgraded
* Budget cuts, property dive hurts Dutch growth
* Spain gradually emerges form economic despair
By Thomas Escritt and Julien Toyer
THE HAGUE/MADRID, Nov 29 Standard & Poor's
agency cut the Netherlands' credit rating on Friday, reducing
the euro zone club of full triple-A nations to just three, while
rewarding Spain for efforts to reform its public finances.
S&P lowered the Netherlands, which is suffering from an
anaemic economy, slumping house prices and falling consumer
confidence, to "AA+" from "AAA". This left Germany, Luxembourg
and Finland as the only members of the 17-nation euro zone with
the top rating from all three leading credit agencies.
However, it raised the outlook for Spanish debt to stable
from negative and upgraded bailed-out Cyprus, highlighting
diverging fortunes within the common currency bloc.
The fiscally conservative Dutch government has long been an
ally of Germany in taking a tough line on the euro zone's
"budget sinners" which run large deficits.
Now, S&P has stripped the Netherlands of its coveted top
long-term rating to reflect its bleak economic growth prospects,
while Spain appears to be finally emerging from the depths of
economic despair, albeit slowly.
Dutch finance minister Jeroen Dijsselbloem, who heads the
Eurogroup of his euro zone peers, said he was disappointed by
S&P's decision. However, he told reporters there would be few
consequences for the cost of financing the country's debt as
interest rates on Dutch state bonds remain very low.
Yields on the 10-year Dutch government bond were 2.02
percent after the announcement.
Dijsselbloem said the only way for the Netherlands to win
back its top rating was to tackle structural weaknesses in the
economy with reforms of healthcare and pensions, as well as the
labour and housing markets.
The country was pulling out of recession, he said. "Even
though we are moving out of the crisis - we will have growth
next year - it's still too low. We have to get higher figures in
order to become a triple A country again, which is of course our
ambition," he said, adding that the government would not try to
stimulate growth by easing off on the budget.
"There is still broad support for quite tight budget
discipline, so there is absolutely no reason to loosen the reins
where budget discipline is concerned," he said.
S&P said the Dutch decision was due to a worsening of growth
prospects. "The real GDP per capita trend growth rate is
persistently lower than that of peers at similarly high levels
of economic development," S&P said in a statement, while
affirming the Netherlands' short-term debt rating at A-1+.
A crisis in Italy and Spain has eased over the past six
months but Europe is still struggling to achieve the economic
growth it needs to bring down unemployment and deal with debt
burdens that in some countries are above 100 percent of annual
The Dutch, who have consistently stressed the need for
budget austerity in the bloc's struggling southern half, have
been forced into several rounds of their own cuts to meet the
European Union's target of a deficit of 3 percent of GDP.
Despite billions of euros of budget cuts, the Netherlands is
still expected to exceed the target this year.
Last month the Dutch central bank warned that weak bank
lending was holding back economic recovery. Consumer demand
remained fragile, exacerbated by a property market crisis in
which house prices have fallen a fifth since their 2008 peak,
and by deep government spending cuts, it said.
As in other euro zone countries, the austerity measures have
provoked much political wrangling and public anger. The Dutch
economy, emerging from its third recession since the global
crisis began in 2008, grew 0.1 percent in the third quarter.
This was in line with the average for the euro zone, where a
French recovery fizzled out and German growth slowed.
S&P forecast the Dutch economy would contract 1.2 percent in
2013, before growing 0.5 percent next year and gradually
accelerating to 1.5 percent by 2016.
Rival agencies Moody's and Fitch still rate the Netherlands
as triple-A. Dijsselbloem said he was optimistic they would not
follow S&P in lowering the Netherlands' credit rating.
"They quite recently reconfirmed our triple A status and I
don't expect them to consider any downgrade. There is no sign of
that, so I'm quite confident there," he said.
Spain, whose ratings have plummeted over the last two years
as it struggled to rescue banks and cash-strapped regional
governments, recently revised up its 2014 growth forecast to 0.7
percent from 0.5 percent.
Prime Minister Mariano Rajoy welcomed the improved ratings
outlook. "It is an impulse for the government to keep working
... It is a success for Spanish society, which has been through
a lot of hardship over the last years," he told a news
conference in Vilnius, on the sidelines of a summit.
S&P is the second of the three main credit ratings agencies
to lift its Spanish outlook in less than a month after Fitch
also switched to stable from negative in early November.
The agency affirmed Spain's BBB-/A-3 long and short-term
foreign and local currency sovereign credit ratings, saying
Spain's external position was improving as economic growth
"Other credit metrics are stabilizing, in our view, due to
budgetary and structural reforms, coupled with supportive euro
zone policies," the agency said.
Thanks to wage moderation and harsh economic reforms, Spain
has regained part of the competitive edge lost during a
decade-long property boom. Its exports are rising and its net
lending position against the rest of the world is expected to
turn positive for the first time in decades.
Moody's, like S&P, rates Spain one notch above junk while
Fitch rates the country one notch higher.
S&P raised its rating for Cyprus to B- from CCC+ on Friday,
saying immediate risks to the island's debt repayments appeared
to have receded.
This marked the first upgrade in three years for Cyprus,
which was shut out of international financial markets in 2011
and came to the brink of financial collapse earlier this year.
The island, one of the smallest countries in the euro zone,
signed up to a 10 billion euro bailout programme with the
International Monetary Fund and European Union in March.