Moody’s downgrades Portugal; EU slams credit rating as ‘bias’ | business | Hindustan Times
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Moody’s downgrades Portugal; EU slams credit rating as ‘bias’

business Updated: Jul 06, 2011 23:12 IST

Moody’s downgrading of freshly bailed-out Portugal’s credit rating to “junk” shocked financial markets on Wednesday and cast new doubt on European efforts to rescue distressed eurozone states without debt restructuring.

Moody’s cited the EU’s management of the crisis, and specifically the attempt to make private creditors share the burden of all future rescues as one reason for its steep downgrade.

The cost of insuring all weaker eurozone countries’ debt against default rose and Portuguese two-term bond yields spiked by a whole percentage point on Moody’s decision, announced late on Tuesday, to cut Portugal by four notches.

The euro and European shares fell on the news, ending a seven-day stocks rally, and Portugal had to pay more to sell 3-month T-bills on Wednesday.

Moody’s said Portugal may need a second round of rescue funds before it can return to capital markets, just as European governments and banks are haggling over a second €120-billion bailout for Greece, which has a much higher debt ratio.

The European Commission criticised the downgrade, saying the “questionable” decision contradicted the EU's own assessments. Commission President Jose Manuel Barroso said the decision was fuelling speculation in financial markets.

“It seems strange that there is not a single rating agency from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe,” he said.
Meanwhile, Ireland said on Tuesday it may have to make additional spending cuts next year to meet deficit reduction targets in its €85-
billion bailout plan.

The Institute of International Finance (IIF) meanwhile chaired the meeting of banks and other private-sector creditors in Paris, held at the headquarters of BNP Paribas , France’s biggest bank and one of the biggest holders of Greek debt. BNP’s chairman said banks needed to find a solution to the Greek debt crisis. Reuters & AFP