Standard & Poor's cuts Catalonia debt rating to junk status

Standard & Poor's slashed Catalonia's debt to junk-bond status Friday, warning of looming financial tensions with Spain's central government, AFP reports. The highly indebted northeastern region, which generates a fifth of Spain's economic output, has long argued that it pays more into Spain's communal tax pot than it receives. Now, Artur Mas of the Catalan nationalist CiU coalition has launched a call for Prime Minister Mariano Rajoy's government to let the region levy its own taxes and have a greater say over how they are spent. Catalonia, whose capital is Barcelona, says it would still return some monies to the central government. But Standard and Poor's said these demands could lead to political tensions and have an impact on Catalonia's financing. The New York-based credit assessor cut Catalonia's long-term credit rating to a speculative BB from BBB-minus and its short-term rating to B from A-3, with a negative outlook. "In our opinion, Catalonia continues to display a weak individual credit profile, with a deteriorated liquidity position and high reliance on smooth central government support for debt repayment purposes," the agency said. "Combined with these characteristics, the region's request to modify key institutional and financial aspects of its relationship with the central government raises uncertainties that we deem incompatible with an investment-grade rating." Catalonia region reached out just three days earlier for a 5.0-billion-euro ($6.3-billion) central government rescue. The region's government, facing huge repayments on its 42-billion-euro debt, said it would tap an 18-billion-euro liquidity fund set up by Madrid to finance troubled regions. But it vowed to refuse any political conditions.