News Column

E.U. ''Deeply Regrets' Portugal's Credit Rating Downgrade

July 6, 2011

The head of the European Union's executive on Wednesday attacked the decision by Moody's credit rating agency to downgrade Portugal's debt rating to junk.

Portugal was given a 78-billion-euro ($112 billion) bailout in May by the E.U. and the International Monetary Fund (IMF), but Moody's said Tuesday that, despite that aid, the country will struggle to bring its debt under control.

"I deeply regret the decision of one rating agency to downgrade" Portugal, European Commission President Jose Manuel Barroso said in the European Parliament in Strasbourg, France.

Barroso, a former Portuguese premier complained that it was unfair to cast doubt on his home country just as it "has just started to implement" the austerity programme the E.U. and the IMF demanded in exchange for their aid.

"In the absence of new facts on the Portuguese economy that could justify the new assessment, yesterday's decisions by one rating agency do not provide for more clarity, they rather add a speculative element to the situation," Barroso charged.

"With all due respect to that specific rating agency, our institutions know Portugal a little bit better," he added. "There is no reason to be distracted or demotivated, if we stick to the course, consolidation will succeed and growth will return," he added.

The E.U. has often railed against credit rating agencies for giving negative assessments on the single currency's weakest economies.

Portugal's latest downgrade will make its debt less attractive to investors. However, there are gradations of junk debt status and, for now, Portugal's rating is healthier than that of Greece, which has the European Union's sickest economy.

Also, unlike Moody's, the Standard & Poor's and Fitch's credit rating agencies have not downgraded Portugal to junk status. All three have downgraded Greek debt.

Still, Moody's said that Lisbon risks following into Athens' footsteps in needing a second bailout to avoid bankruptcy.

Barroso confirmed plans by the commission to impose tighter regulation and promote more competition among credit rating agencies, whose credibility was battered in 2008-2009 for failing to spot the incoming global financial crisis.

In Brussels, a spokesman for E.U. economy commissioner Olli Rehn said Moody's decision "raises once more the issue of the appropriateness of behaviour of credit rating agencies and of their so-called clairvoyance."

"It is an unfortunate incident," Amadeu Altafaj complained.

Source: Copyright 2011 dpa Deutsche Presse-Agentur GmbH

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