Despite European efforts to rescue Spain's banks, Moody's downgraded the country's debt to near-junk-bond status Thursday, and the ramifications are reverberating across the globe. The U.S. ratings agency knocked Spain's debt down three notches from A3 to Baa3 putting it in league with Azerbaijan and Croatia and sending its borrowing costs soaring. This morning the ripple effect is spreading:

Asian Stocks tumble. This morning, Bloomberg's Jonathan Burgos and Yoshiaki Nohara report that the downgrade has sunk Asian stocks making for the third drop in five days for the regional index. "The MSCI Asia Pacific Index declined 0.5 percent to 112.93 as of 8:44 p.m. in Tokyo, with almost two shares falling for each that rose. The gauge dropped 12 percent from this year’s peak on Feb. 29 through yesterday," they report. “The Spanish bank bailout on the weekend didn’t help matters ... and also made investors worry about investing in Spanish bonds,” Shane Oliver, head of investment strategy at AMP Capital Investors, told the news service. “Europe is sliding further into a recession and the global economy is still slowing in the U.S., and so I think this is a soft patch.”

Italy pays the price. The Wall Street Journal's Nick Cawley and Tommy Stubbington say Italy is the worse effected by the downgrade, besides Spain of course, as Italian borrowing costs soared at a bond auction amid the Spanish bailout. "The souring of investor sentiment towards the euro zone's third-largest member reflects concerns about the knock-on effect of Spain's banking crisis, as well as growing doubts about [Prime Minister Mario] Monti's ability to turn around Italy's moribund economy, which experienced the largest contraction among members of the Group of 20 in the first quarter and seems set for a prolonged contraction," they report. Nicholas Spiro, managing director of Spiro Sovereign Strategy said the rise in Italian borrowing costs signals a need for Europe to step in more aggressively. "Demand is holding up, just about, but only because of unprecedented domestic financial repression," he says, "Unless the [European Central Bank] steps in very soon to restore confidence, Italy and Spain will no longer have market access."
 
"Full-scale" bailout of Spain and Italy back on the table. This morning, Spain's borrowing costs rose to the dreaded number 7 percent, widely-considered an "unsustainable" level, and The Guardian's Phillip Inman reports that pressure is building on Spain's conservative government to seek a full-scale bailout from Europe beyond the $100 billion on loan it's already receiving. "Moody's said the Spanish government's ability to raise finance on the world's markets was being hindered by high interest rates, a situation which had led it to accept funds to recapitalise its debt-burdened banks," he reports. Sean Egan, president of Egan-Jones, an independent ratings agency, tells CNBC that both Spain and Italy need full-scale bailouts and predicts the countries will request help in the next six months.  “We think that Spain will be back at the table, asking for more than the 100 billion euros ($125 billion) that they just asked for, and we think that Italy will also come to the table within the next 6 months.”
 
Geithner calls for more action. Treasury Secretary Tim Geithner said Europe needs to do more to ease worries over its debt crisis, reports The Wall Street Journal's Sudeep Reddy. "Geithner ... said the currency union must act quickly with more measures to quell its crisis. ‘This is a very challenging crisis for them still,’ he said ... in a discussion at the Council on Foreign Relations. ‘They recognize they're going to have to do a bunch more to...restore a bit of calm and to convince people they're going to do what's necessary to make this work.’" Reddy reports.