The ratings on the Kingdom of Spain reflect its modern and relatively diversified economy, stable political environment, and currently moderate levels of general government debt. Nevertheless, we believe that Spain faces substantial challenges over the medium term in order to improve the economy's flexibility and limit the expected deterioration in the country's public finances. In our opinion, rebalancing the economy toward more productive sectors is likely to be a slow process, resulting in a period of much weaker growth than experienced over the past decade. At the same time, we expect large general government primary deficits to lead to a rising government debt burden. Spain's membership of the European monetary union protects the economy from exchange rate crises, but also
