Spain can now borrow more cheaply than France. That sentence would have sounded improbable a decade ago, but the yield on Madrid's 10-year debt has slipped below Paris's, a configuration Scope Ratings noted as historically rare when it lifted the country's sovereign rating to A+ from A on Friday. The upgrade, which places Spain at the fifth-highest investment-grade rung, reflects what the agency called "sustained economic performance, underpinned by strong domestic demand and receding external vulnerabilities."

The numbers bear that out. Output expanded 0.7% in the second quarter, leaving Germany, Italy and France behind, and the Economy Ministry is forecasting 2.6% growth for 2026, nearly triple the pace the European Central Bank projects for the euro area as a whole. Fiscal metrics have improved in tandem: the debt-to-GDP ratio has been edging down, and the Treasury's May syndicated 10-year bond drew orders of €138 billion, more than ten times the amount on offer.

All five ECB-eligible agencies now rate Spain higher

The upgrade completes a clean sweep. All five rating firms whose assessments the ECB uses for its collateral framework have now raised Spain's score. That matters because it widens the pool of Spanish bonds eligible for Eurosystem operations and reinforces the downward pressure on borrowing costs. The Economy Ministry said the moves showed that "international rating agencies, markets and investors have been recognizing the strength and modernization of the Spanish economy."

Political fragmentation remains the catch

Scope's press release, however, devotes as much space to the risks as to the achievements. Prime Minister Pedro Sánchez has governed without a parliamentary majority since the 2023 election, relying on a fragile coalition and ad-hoc support from regional parties. No budget has cleared parliament since 2023, and the prospects for one before the next general election are slim. Corruption allegations against members of his inner circle have further eroded his room for manoeuvre.

The agency was blunt: "Spain's high parliamentary fragmentation and the weak minority government result in elevated political uncertainty, which weighs on the reform momentum and on the government's capacity to respond swiftly to shocks." That warning is not theoretical. Structural reforms, on pensions, labour markets, and the tax system, have largely stalled, leaving the economy reliant on cyclical tailwinds such as tourism and EU recovery funds.

The Ceuta crisis and its aftermath

A flashpoint arrived in late July, when around 80,000 migrants crossed into Ceuta, one of Spain's two North African enclaves, in the space of a week. Most were returned to Morocco within days, but several thousand remain in legal limbo. Scope said the episode "is further weakening the government's position," and it has reignited a debate over border management that splits the coalition. The European Border and Coast Guard Agency has been monitoring the situation, but the political fallout in Madrid is likely to outlast the operational response.

What the upgrade means for euro-area dynamics

Spain's outperformance is reshaping perceptions of the euro-area periphery. For years the narrative centred on Italy's debt trajectory and France's deficit; now Spain, the bloc's fourth-largest economy, is financing itself at lower yields than both. That shift has implications for monetary policy transmission: if Spanish banks and firms enjoy cheaper funding than their peers in Paris or Milan, the ECB's rate decisions may feed through unevenly across the currency union. It also raises questions about whether the ECB's collateral rules, which treat all investment-grade sovereigns equally above a threshold, still reflect relative risk.

Next steps: budget, elections, and the rating outlook

The immediate test is whether Sánchez can pass a budget for 2027. Without one, the government operates on a rollover basis, limiting new spending initiatives and signalling paralysis to investors. The next general election must be held by late 2027, but could be called earlier if the coalition fractures. Scope has placed Spain on a stable outlook, meaning another upgrade is not imminent, but a downgrade would require a clear deterioration in either fiscal discipline or political stability. For now, the market's verdict, expressed in that €138 billion order book, is more optimistic than the agency's caution.

People mentioned

Organisations

Scope Ratings · European Central Bank · Spanish Economy Ministry · Spanish Treasury