Portugal has hit back at Moody’s for downgrading the country’s sovereign debt to junk status, criticising the US rating agency for failing to take into account new austerity measures and a “broad political consensus” in favour of tough fiscal discipline.
The four-notch downgrade to Ba2 has dealt a blow to Portugal’s efforts to distance itself from Greece and is expected to increase the yield the country has to pay at an auction of up to €1bn ($1.4bn) of three-month treasury bills on Wednesday.
Vítor Gaspar, finance minister, said the ratings cut to below investment grade failed to reflect the unequivocal support of the main government and opposition parties for the country’s €78bn financial rescue programme. (...)
Pedro Santos Guerreiro, editor of the Jornal de Negócios business daily, said the ratings cut threatened to become a self-fulfilling prophecy, undermining the investor confidence Portugal needed to resolve its debt crisis.
The Left Bloc, a small leftwing party opposed to the bail-out, said the downgrade proved that tough austerity measures taken over the past year were not the solution to the country’s difficulties.
Moody’s said the downgrade reflected fears that Portugal would need to follow Greece in seeking a second bail-out.
Moves to involve private investors in a new rescue plan for Greece made it likely that the EU would require the same preconditions for Portugal, the agency said in a statement on Tuesday night.
This would discourage new private sector lending, decreasing the likelihood that Portugal could resume financing its debt in international markets in the second half of 2013, as envisaged in the bail-out agreement, Moody’s said.
The agency also cited “heightened concerns” that Portugal would not be able to meet the deficit-reduction targets it has agreed to in the rescue package.
This was because of the “formidable challenges” facing the new centre-right coalition government to cut spending, increase tax revenue, lift economic growth and support the banking system.
However, Mr Gaspar said the downgrade ignored the impact of an extraordinary tax on income announced last week, which was “proof of the government’s determination” to meet this year’s deficit targets by going beyond the bail-out agreement.
The one-off tax, which will require Portuguese workers to forfeit half of the extra one month’s pay they receive as a December bonus, is expected to raise more than €840m.
Mr Gaspar said the government was committed to meeting deficit-reduction targets ahead of schedule and taking additional austerity measures beyond those set out in the rescue agreement.
It would also accelerate the privatisation programme agreed with the so-called “troika” – the European Commission, IMF and European Central Bank. This would have a positive impact on the public debt and market confidence, he added.
http://www.ft.com/cms/s/0/86e26194-a7a3-11e0-a312-00144feabdc0.html#ixzz1RKX7ERxY
The four-notch downgrade to Ba2 has dealt a blow to Portugal’s efforts to distance itself from Greece and is expected to increase the yield the country has to pay at an auction of up to €1bn ($1.4bn) of three-month treasury bills on Wednesday.
Portugal’s PSI equity index quickly fell 2.6 per cent and the country’s credit default swaps have hit a record of 850 basis points, up 80bp for the day. Spreads between Spanish and Italian sovereigns and Bunds are also widening, indicating contagion fears.
Pedro Santos Guerreiro, editor of the Jornal de Negócios business daily, said the ratings cut threatened to become a self-fulfilling prophecy, undermining the investor confidence Portugal needed to resolve its debt crisis.
The Left Bloc, a small leftwing party opposed to the bail-out, said the downgrade proved that tough austerity measures taken over the past year were not the solution to the country’s difficulties.
Moody’s said the downgrade reflected fears that Portugal would need to follow Greece in seeking a second bail-out.
Moves to involve private investors in a new rescue plan for Greece made it likely that the EU would require the same preconditions for Portugal, the agency said in a statement on Tuesday night.
This would discourage new private sector lending, decreasing the likelihood that Portugal could resume financing its debt in international markets in the second half of 2013, as envisaged in the bail-out agreement, Moody’s said.
The agency also cited “heightened concerns” that Portugal would not be able to meet the deficit-reduction targets it has agreed to in the rescue package.
This was because of the “formidable challenges” facing the new centre-right coalition government to cut spending, increase tax revenue, lift economic growth and support the banking system.
However, Mr Gaspar said the downgrade ignored the impact of an extraordinary tax on income announced last week, which was “proof of the government’s determination” to meet this year’s deficit targets by going beyond the bail-out agreement.
The one-off tax, which will require Portuguese workers to forfeit half of the extra one month’s pay they receive as a December bonus, is expected to raise more than €840m.
Mr Gaspar said the government was committed to meeting deficit-reduction targets ahead of schedule and taking additional austerity measures beyond those set out in the rescue agreement.
It would also accelerate the privatisation programme agreed with the so-called “troika” – the European Commission, IMF and European Central Bank. This would have a positive impact on the public debt and market confidence, he added.
http://www.ft.com/cms/s/0/86e26194-a7a3-11e0-a312-00144feabdc0.html#ixzz1RKX7ERxY
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