"The figures are terrible for everyone and terrible for the government ... Spain is in a crisis of huge proportions", Foreign Minister José Manuel Garcia-Margallo said. Standard and Poor's cited risks of an increase in bad loans at Spanish banks and called on Europe to take action to encourage growth.
The downgrade put Spain's credit rating at the same level as Italy. S&P now has Spain on a BBB+ rating, which means "adequate payment capacity" and is only a few notches above a junk rating. Fitch and Moody's still rate Spain's sovereign with a "strong payment capacity".
S&P said it was likely the government would have to put more funds into banks, and called on eurozone countries to manage the sovereign debt crisis better.
The government is considering whether to create a holding company for the banks' toxic real estate assets as investors have not been convinced by three rounds of clean-ups and consolidations in the financial sector.
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