It has been six years since the global recession began to ravage Europe which has been the last major region to start to escape the downturn. Other than Ireland, the hardest hit nations were in southern Europe–Spain, Greece, and Portugal. Each received large bailouts and had some measure of austerity forced on them by the IMF, EU, and ECB. However, there have been tiny bits of evidence that each of the three has begun to turn around. Their GDPs have begun to join the worldwide recovery. On the other hand, their employment levels have not. The jobless rate in Spain remains 25% and about 50% among youth.

Moody’s acknowledged the modest steps forward in Spain as it improved its rating of the nation’s sovereign debt.

Moody’s Investors Service has today upgraded Spain’s government bond rating to Baa2 from Baa3 and assigned a positive outlook. Concurrently, Moody’s has also upgraded Spain’s short-term rating to (P) Prime-2 from (P) Prime-3.

The key drivers for upgrading Spain’s debt ratings and assigning a positive outlook are as follows:

1) The rebalancing of the Spanish economy towards a more sustainable growth model, which is being underpinned by structural improvements in the country’s external competitiveness, and the ongoing deleveraging in the domestic economy.

2) The progress made in implementing broad structural reforms, particularly in the labour market and the public pension system, structural fiscal measures and changes to the fiscal framework for the country’s regional governments as well as the restructuring of the Spanish banking system. These efforts support Moody’s expectation of stronger, more sustainable economic growth over the medium term and continued improvements in the resilience of government finances.

3) The improvement in the government’s funding conditions since the height of the euro area sovereign debt crisis in mid-2012. In Moody’s view, the fall in borrowing costs reflects the combined effects of the European Central Bank’s (ECB) policy announcements and actions, the evident improvements in the Spanish economy, and the government’s track record of implementation of fiscal and structural policy measures.

And

The positive outlook on the Baa2 rating reflects Moody’s expectations that improvements in the economy and the government’s fiscal position will continue over the forecast horizon. More specifically, Moody’s expects the economic recovery to gather speed in the course of 2014 with domestic demand — particularly business investment — contributing positively to growth. The rating agency also expects wage moderation to continue, deepening the important competitiveness gains achieved to date. In Moody’s central scenario, the budget deficit is expected to be gradually reduced over the coming years.

Finally,

Moody’s would consider upgrading Spain’s government bond rating if the rating agency anticipated a reversal of the upward trajectory in Spain’s debt-to-GDP ratio against the backdrop of a resumption of significant growth.

Conversely, the outlook and eventually the rating would come under downward pressure if the economic improvement or fiscal consolidation stalled. While significantly less likely than a year ago, significant further bank recapitalisation needs or renewed and sustained concerns over market access would also be negative for the rating.

The Europe recovery is weak enough, and Spain is so deeply attached to the EU economy, that the case against it remains stronger than the case for.

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