The financial solvency of an institution is its ability to pay its debt and the risk involved in investing in that debt.  In order for the market to be able to know this financial solvency, there is a group of companies called credit rating agency that gives these institutions a rating that assesses said financial solvency.  A good rating makes it easier for that institution to go to the credit market to get loans and good interest rates.  A low rating makes that harder, if only by making the interest rate higher, depending on the risk the loaning agency takes on.

For a long time, the large credit rating agencies were guided by the principle that no sub-national administration could have a rating that was higher than that of the State it is a part of.

That put the administrations of the governments of the Lower Basque Country, namely the Basque Autonomous Community, the Navarrese Chartered Community, and Biscay, Gipuzkoa, and Araba, in a peculiar spot, because despite having their own revenue agencies, independent of that of Spain’s, and despite being able to have a better rating than Spain, the agencies could not give them that because the ceiling was Spain’s rating.  The leaders of the Basque governments’ revenue agencies never understood that, since the objective data allowed them to have better ratings thanks to their better solvency, and therefore better conditions on the credit market.  There was also the added factor that getting a better rating would be a recognition that the makers saw them as entities that were “independent” of Spain’s revenue agency.

It is not hard to understand that the leaders of the Spanish revenue agency, and politicians and civil servants, did everything possible to ensure that situation didn’t change.

But a few years ago, the rule finally did, and these agencies allowed the Basque Autonomous Community and the Navarrese Chartered Community to have their own rating, even if it was higher than Spain’s.

Of course this ruffled some feathers in the Spanish revenue agency and elsewhere in the Government of Spain, and quite a bit of joy among the four Basque revenue agencies in Araba, Biscay, Gipuzkoa, and Navarre, because it meant something more than just recognition of better solvency.  It meant that there was a recognition of their autonomy and lack of dependence.  And, of course, it also meant that from that moment on, they could turn to credit markets with better conditions than they had before.

This situation, with a better rating, has continued since the rule change, undoubtedly as a consequence of the Economic agreements.  This remnant of Basque sovereignty has allowed the Basques south of the Pyrenees to legislate, collect, and manage their own taxes.

We remembered this small “victory” when we came across a news item in December 2020, when the Moody’s rating agency recognized the Basque A.C. with an A3 rating, placing it in the upper-middle range of its ratings chart.  Before the crisis, both Basque territories had even reached the highest rating possible, and they’re working their way back up, after having dropped to a Baa2 during the worst of the crisis.

The text below explaining this rating of its financial solvency states:

“The credit profile of the Basque Country (A3) reflects the entity’s unique and constitutionally protected tax regime, which currently enables the region to retain sufficient credit strength to have a rating one notch above that of the government of Spain (Baa1). The region’s legal status provides a higher degree of fiscal flexibility compared to other Spanish regions. In addition, the Basque Country benefits from good access to capital markets and the region has always complied with the deficit limit targets set by the central government.”

So, that.

Yahoo Finance – 14/12/2020 – USA 

Basque Country (The) — Moody’s announces completion of a periodic review of ratings of Basque Country (The)

Moody’s Investors Service (“Moody’s”) has completed a periodic review of the ratings of Basque Country (The) and other ratings that are associated with the same analytical unit. The review was conducted through a portfolio review in which Moody’s reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. The review did not involve a rating committee. Since 1 January 2019, Moody’s practice has been to issue a press release following each periodic review to announce its completion.

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Evolution of the rating of the Navarrese CC

Evolution of the rating of the Basque AC

Evolution of the rating of the Kingdom of Spain