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Moody’s Cuts Portugal Credit Rating To Junk

From those fear mongers at Reuters:

Moody’s cuts Portugal to junk, warns of second bailout

By Andrei Khalip and Walter Brandimarte | Reuters – Tue, Jul 5, 2011

LISBON/NEW YORK (Reuters) – Moody’s became the first ratings agency to cut Portugal’s credit standing to junk, warning the country may need a second round of rescue funds before it can return to capital markets.

The downgrade on Tuesday was not entirely unexpected and served as a reminder that Europe’s debt troubles extend beyond Greece, which has dominated news headlines over its second financial bailout.

Some economists think Ireland may also need additional support, and investors worry Spain and Italy could be next in line for aid

And, of course, they would like us to think that the US will risk a similar fate if we don’t raise our debt ceiling and go further into debt.

Mohamed El-Erian [sic], co-chief investment officer for bond fund PIMCO, said it was unlikely that Europe’s troubles would constitute a "Lehman moment" that paralyses the U.S. economy, but it was a drag on an already disappointing recovery…

In truth, "Europe’s troubles" are probably helping the US economy.

Moody’s Investors Service slashed Portugal’s credit rating by four levels, to Ba2, causing the debt-laden Iberian country to follow Greece into junk territory below investment grade. Greece is rated much lower, at Caa1

Moody’s cited heightened concerns that Portugal will not be able to fully meet deficit reduction and debt stabilization targets set out in its loan agreement with the European Union and International Monetary Fund…

Why doesn’t Portugal just raise its debt ceiling and/or print more money?

Portugal’s new center-right government said in a statement that Moody’s did not take into account strong political backing for austerity after a June 5 election, and an extraordinary tax announced last week

It also reaffirmed commitment to deepening and speeding up austerity measures that the country vowed to implement under its bailout pact, saying a strong macroeconomic adjustment was "the only way to reverse the course and restore confidence."

The country has to slash its budget deficit to 5.9 percent of gross domestic product this year after overshooting its target last year, when the gap was 9.2 percent, and then reduce it to 3 percent by the end of 2013.

Anthony Thomas, Moody’s analyst for Portugal, told Reuters "evidence that Portugal is meeting or indeed exceeding its deficit reduction targets" could be a positive that may lead the agency to change its outlook on the country’s credit rating to stable from negative." …

Funny, but that isn’t what we hear when we are told we need to raise our debt ceiling rather than cut spending.

This article was posted by Steve on Wednesday, July 6th, 2011. Comments are currently closed.

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