* Moody's move removes most immediate danger for Spain
* Berlin appears to be opening door for Spain's request
* Spanish aid programme to be discussed at EU summit
By Daniel Bases and Julien Toyer
NEW YORK/MADRID, Oct 16 Spain's government
dodged a bullet on Tuesday when Moody's Investors Service
affirmed its investment grade rating, assuaging widespread fears
that the euro zone country would be cut to a junk rating.
Moody's kept a Baa3 rating but assigned a negative outlook,
leaving both the rating and the outlook in line with that of
rival agency Standard & Poor's, which rates Spain at BBB-minus.
Fitch Ratings' grade for Spain remains one notch higher at BBB
but also with a negative outlook.
Spain has been ready to ask for euro zone help since the
beginning of the month, European officials have told Reuters,
with the most likely method being a precautionary credit line of
around 50 billion euros ($64.7 billion) triggering a potentially
unlimited bond-buying programme from the European Central Bank.
But German reluctance to sign off on another bailout for a
troubled euro zone country - the second for Spain after it
obtained a 100-billion-euro credit line for its banks in June -
has delayed a request.
A German official told Reuters on Tuesday it was not clear
when Spain would ask, but said aides were laying the groundwork
for such a move.
Moody's said in a statement it believed that "the
combination of euro area and ECB support and the Spanish
government's own efforts should allow the government to maintain
capital market access at reasonable rates, providing it with the
time it needs to stabilise public debt over the next few years."
"Specifically, Moody's believes that the government will
likely ask for an Enhanced Conditions Credit Line (ECCL) from
the ESM (European Stability Mechanism) as a prerequisite for the
ECB activating its OMT program in relation to Spanish government
debt," Moody's said referring to the ECB's new bond purchasing
Moody's believes the ECB's willingness to help with bond
buying, reducing the volatility in Spanish government bond
yields, will cut the risk that Madrid loses access to the market
for its sovereign debt, at least for the foreseeable future.
Keeping access to debt markets for sovereign funding needs
is key, a Moody's analyst told Reuters on Tuesday.
"A full program along those lines where basically the
official sector provides exclusively the funding for all your
requirements, that in our view is not compatible with an
investment grade, and that would apply in all the cases," said
Kathrin Muehlbronner, a senior analyst with Moody's Investors
If Spain were to lose market access, that would not be
compatible with a Baa3 rating, she confirmed.
The Moody's decision removes the most immediate threat to
Spain but also keeps the pressure on the country to move ahead
with a request if it wants to maintain its investment grade
Spanish officials say Prime Minister Mariano Rajoy has not
made a final decision on a bailout request because he still
wants to discuss with the ECB some details of the plan.
Spain also wants to make sure its euro zone peers won't be
asking for additional demands on economic reforms once it has
made the request.
The matter will be discussed at a European summit in
Brussels on Thursday and Friday and possibly at a separate
summit of the 17 euro zone leaders after the main meeting, some
Once a request is made, the country still has to negotiate
the conditions attached to the loan with the euro zone and sign
a memorandum of understanding.
Prior to the announcement, yields on Spanish 10-year
sovereign bonds edged up to 5.792 percent on
Tuesday, well within recent ranges. Analysts expect those yields
to remain rangebound for as long as uncertainty persists over
when Spain will seek financial aid.
The euro jumped against the U.S. dollar on Moody's
affirmation, rising approximately 0.30 percent to trade in thin
volumes at $1.3092, its highest level since
mid-September. It has since extended those gains.
In New York trade, the euro had already rallied to a
one-week high on the greenback as media reports indicated
Germany was open to a precautionary line of credit for Spain as
well as tentative signs of improving confidence in Germany's