Moody's downgrades Spain's government bond rating to Baa3 from A3

Moody's points out that the EU loan of EUR100 billion to recapitalise its banking system will further increase the country's debt burden, which has risen dramatically since the onset of the financial crisis.Moodys warns against the Spanish government's increasing difficulties with its bond sales as yields continue to increase and buyers remain limited.The lack of growth in the economy renders it extremely vulnerable to a sudden halt in funding.

While keeping the downgrade under review Moody's says that  other eurozone countries may also be affected especially with regard to the ongoing uncertainty over Greece.The agency however reaffirmed the underlying strengths off the Spanish economy.

Considering that the EU went ahead with the loan to Spanish banks, the Moodys assessment seems to be an indictment of EU financial policy and demonstrates the extraordinary increase in power of credit rating agencies which can overule governments since the onset of the global economic crisis.

Euorpe remains a key market for North Africa and Spain has deep commercial and trading relations with the Maghreb in particular so any its financial stability remains vital for the Southern Mediterraean.

Moodys did  not hestitated to downgrade Tunisia's economy because of continued instability and the riots over the last two days will not help.