burning bridges
Credit Ratings: Who Needs Them, Anyway?

The left-wing government of Spain’s financially fragile capital city would rather not deal with the pesky organizations that evaluate its solvency. Madrid is cutting ties with S&P and Fitch as the city plans more social spending, a move that will leave the city without a credit rating within a few months. El Pais reports on the potentially catastrophic decision:

After meeting with both ratings agencies, the municipal economy and treasury department has decided not to renew the contracts next year […]

Although both agencies automatically rate countries, regardless of whether there is a commercial relationship between them or not, that is not the case with local and regional governments, which need to sign a contract just like any private company.

This is all very well so long as Madrid doesn’t want anybody to lend it money ever again. Being able to tap capital markets for infrastructure and construction projects is pretty important for a city that is interested in promoting employment, growth, and economic development, but that doesn’t seem to matter very much to Madrid’s ideological leadership.

It’s also worth noting that this move won’t just create problems with lenders. Far-sighted businesses are also unlikely to want to invest in cities that are burning the bridge to their own future. And if Madrid’s economy tanks and its credit dries up, there won’t be much money left for social spending. This won’t end well.

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