S&P Cuts Spain's Long-term Credit Rating 2 Notches

S&P praised the government's labor-market reforms, which it said would slow the pace of job-cutting and eventually help improve the employment picture. But it warned that the measures won't create net new jobs in the near term.

"As a consequence, the already high unemployment rate — especially among the young — will likely worsen until a sustainable recovery sets in," S&P said.

Spain is digging out from the 2008 collapse of a property bubble that had fueled nearly a decade of growth.

S&P had harsh words for Europe's handling of the debt crisis, which it said "continues to lack effectiveness." It said that Spain's situation could deteriorate further unless Europe takes steps to bolster investor confidence and stabilize capital flows with the rest of the world. It suggested more pooling of resources and obligations and policies to better coordinate wages among European countries.