Spain says Moody's downgrade 'contradictory'

(MADRID) - Spain lashed out Tuesday at Moody's decision to downgrade its sovereign debt, saying it was 'contradictory' given that the rating agencies have welcomed its latest economic reforms.

"They say that yes, they welcome them (the reforms) and then they decide the opposite according to their criteria, it is fairly paradoxical," Budget Minister Cristobal Montoro said.

"It is good, they do their work, their valuations, but the truth is that it is a bit contradictory," he told Onda Cero radio.

"They take a decision in which they say: 'We value the reforms they are making but they are not going to achieve their goals'," Montoro added.

"But what goals? The goal of returning to economic growth and employment? It seems to me that we are making the reforms.

"If you value the reforms positively, it is because Spain is resolving its big problem which is that it does not have economic growth, economic activity is falling and therefore jobs continue to be destroyed," Montoro added.

Moody's slashed Spain's rating by two notches to A3 from A1 on Monday, saying the country's regional governments were not making up budget shortfalls fast enough.

"Moody's is skeptical that the new government will be able to achieve the targeted reduction in the general government budget deficit, leading to a further increase in the rapidly rising public debt ratio," it said.

At the same time, the agency trimmed Italy and Portugal ratings by one notch and warned France, Britain and Austria that they were increasingly vulnerable to the crisis of confidence in eurozone debt.

Spain's conservative government, which took power in December, has launched reforms to wipe out the budget deficit by 2020, bolster banks' balance sheets and overhaul the labour market to fight a 22.85-percent jobless rate.

"We want Spain to be a reliable member of the European Union, we are trying to generate confidence with global investors. The reforms we are putting in place at home are not imposed on us by nobody, they respond to our objective needs," said Montoro.

The Bank of Spain predicts the Spanish economy will contract by 1.5 percent this year before posting a modest recovery of 0.2 percent in 2013.

Spain emerged only at the start of 2010 from an 18-month recession triggered by the 2008 global financial crisis and a property bubble collapse that destroyed millions of jobs and left behind huge bad loans.