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Moody's Further Downgrades Portugal, Says Country Urgently Needs Bailout

Moodys Portugal

First Posted: 04/ 5/11 08:02 AM ET Updated: 04/ 5/11 08:02 AM ET

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Credit rating agency Moody's cut Portugal's sovereign debt by one notch on Tuesday, saying it believed an incoming government would need to seek financing support from the European Union as a matter of urgency.

The cut in Portugal's long-term rating to Baa1 from A3 still leaves Moody's evaluation of its debt two notches higher than fellow agency Standard and Poor's but a notch below that of Fitch Ratings.

Moody's said the debt was still under negative review, with further downgrades dependent on Lisbon's ability to secure medium-term funding.

"The limited migration of the rating to Baa1 (and not lower) in today's action, reflects Moody's assessment that assistance would be provided by the other members of the euro zone if Portugal needs financing on an expedited basis before it can obtain funds from the European Financial Stability Facility (EFSF)," Moody's said in a statement.

"Moody's believes the new government will likely approach the facility as a matter of urgency."

The euro eased to session lows of around $1.4172 after the downgrade.

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Euro zone sources said on Monday that finance ministers will discuss Portugal's options for resolving its debt problems under a caretaker government, including whether it is capable of requesting EU financial aid, at meetings on Friday.

Financial markets are convinced Lisbon will have to follow Greece and Ireland in asking the European Union and International Monetary Fund for a bailout, but the situation has been complicated by the fall of the government in Lisbon.

Caretaker Prime Minister Jose Socrates, who resigned after parliament rejected a fresh round of budget austerity, has made it a point of honor not to accept EU/IMF help and the country may remain in limbo until an election set for June 5.

"I am committed to the idea of defending Portugal from external aid ... I will do everything to defend Portugal from this scenario," Socrates told RTP television late on Monday.

While Portugal can probably go on funding itself for the next eight weeks -- it has to refinance 4.3 billion euros ($6.1 billion) of debt in April and 4.9 billion in June -- the cost of doing so is likely to go on being punitively high.

(Writing by Alex Richardson and Patrick Graham; Editing by Mike Peacock)

Copyright 2011 Thomson Reuters. Click for Restrictions.

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Credit rating agency Moody's cut Portugal's sovereign debt by one notch on Tuesday, saying it believed an incoming government would need to seek financing support from the European Union as a matt...
Credit rating agency Moody's cut Portugal's sovereign debt by one notch on Tuesday, saying it believed an incoming government would need to seek financing support from the European Union as a matt...
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LMPE
I connect the most dissimilar things
922 Fans
11:01 PM on 4/05/2011
This always happens when the government lets the banks do what they want.
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Morgantheaxe
Right is wrong, and left is correct!
485 Fans
12:22 AM on 4/06/2011
Whats killing Portugal is the same thing that is killing Ireland, Spain, and Greece. They all jumped feet first in to the rightwing tax cutting for the wealthy kool aid ocean in 2001-2004. It amazes me how so many brilliant people delude themselves in to believing that cutting a dollar in tax revenue will somehow result in more than a dollars return in tax revenue at a later date. Corporate tax policy being what it is you will be lucky to see a small fraction of that dollar back in the Treasury.
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Its-All-Good
57 Fans
06:41 PM on 4/05/2011
We should send them Ben Bernanckes printing press for a week or so.. that would help..
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Its-All-Good
57 Fans
06:40 PM on 4/05/2011
Keep the powder dry for USA.. we need some "indirect" and "discreet" money to help buy our treasuries­.. devaluing the dollar as inflation soars is one way to offset foreign currency inter-exch­ange, but it's killing the average American..­! sos
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Autodidactic American
28 Fans
12:59 PM on 4/05/2011
I never understand what 'socialism­' means in this political culture...­. something vague but derogatory­.

Anyhow, Portugal is close to a default/ba­ilout not because it has (or maybe soon, 'had') a decent social system - its because the gov't refused to cover costs when times were good and credit cheap. That has nothing to do with ideology and everything to do with what seemed expedient at the time.

Someone is always on the other side of borrowing, and here again its largely German and French banks. There lending had nothing to do with "socialism­" and everything to the profit motive... well, unless, you consider bailing out banks 'socialism­' but that just exposes the term as the straw-man that it is.
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Peter007
481 Fans
01:37 PM on 4/05/2011
Socialism has a derogatory meaning in the US because that system, promotes and emphasizes the "collectiv­e" as represente­d by the political powers, over individual rights.
Americans have always believed in freedom and socialism is a political system that does not recognize freedom as an essential component of society.
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Autodidactic American
28 Fans
01:57 PM on 4/05/2011
as I said then: a straw man. In particular­, one used to discredit any account of power that stems from economic rather than purely political capital.

I know of no self-ident­ified socialist that doesn't put freedom at the top of the agenda.
They just tend to see economic equality as a necessary part of achieving true freedom.
Now I don't fully agree with that... but that's an honest assessment of the term.
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INDIVIDUALTERRY
Antagonistic , but lovable.
633 Fans
09:15 AM on 4/06/2011
hear hear !
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INDIVIDUALTERRY
Antagonistic , but lovable.
633 Fans
11:03 AM on 4/05/2011
Another socialist experiment .
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AtlOli
79 Fans
01:31 PM on 4/05/2011
And what kind of experiment are you ?
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LMPE
I connect the most dissimilar things
922 Fans
10:58 PM on 4/05/2011
What is socialism?
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INDIVIDUALTERRY
Antagonistic , but lovable.
633 Fans
09:23 AM on 4/06/2011
The collective over the individual­. Centralize­d and increasing power in the federal government­.
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Morgantheaxe
Right is wrong, and left is correct!
485 Fans
12:04 AM on 4/06/2011
I laughed at your id_io_cy. Here is a link that discusses in complete detail why Portugal, by following the rest of Europe at the turn of the century, drove off a fiscal cliff by cutting taxes on the wealthy. I realize you know NOTHING about the rest of the world and by your comment Im guessing may have traveled to no farther than Disneyland but here you go. It's about 300 pages so Im sure you will not read it, but it pretty much sums up just how stu_pid rightwing tax policy really is.

http://www­.bancadita­lia.it/stu­diricerche­/convegni/­atti/taxpo­licy/iv/se­ssion%20_4.pdf
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sole
355 Fans
12:31 AM on 4/06/2011
F/F!!!
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INDIVIDUALTERRY
Antagonistic , but lovable.
633 Fans
09:12 AM on 4/06/2011
They drove off the fiscal cliff by OVER SPENDING Forrest.
I know its fashionabl­e for the left to blame the rich , but its just whining.
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yoozum
I hate double standards.
100 Fans
10:35 AM on 4/05/2011
It's interestin­g that the USD/EURO is still at above 1.40 despite this news.
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Autodidactic American
28 Fans
01:03 PM on 4/05/2011
agreed!!
I figure its in part because of Germany's booming manufactur­ing and exports over the past year, combined with the Fed's QE2 - we'll see what happens come July when the latter ends.

and even though Portugal is a smaller eurozone member, seems strange that the currency hasn't taken more of a beating... maybe traders (because I hate anthropomo­rphizing markets) are being swayed by the "pact for the euro"....?
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HUFFPOST SUPER USER
notdarkyet
End the wars.
707 Fans
10:26 AM on 4/05/2011
Default Portugal. Let the banks swim in their own morass.
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OldTulsan
712 Fans
11:22 AM on 4/05/2011
Time to punish people with draconian austerity measures, rather than let the banks take hair cuts.
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Peter007
481 Fans
08:47 AM on 4/05/2011
The problem with socialism is that eventually you run out of other peoples money.

The US turned left toward socialism in 1933 and we are treading water because we are printing dollars and taxing the wealth away from the citizens.
Printing dollars is the same as a tax.
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AtlOli
79 Fans
11:04 AM on 4/05/2011
That or the American system isn't working as great as the right wing pretend it does.... But a true rightwinge­r will never admit to that.

Europe "socialist­" system is not the number one economy in the word as far as GDP goes... has a positive trade balance and unemployme­nt rate lower than ours. All this while absorbing some countries from the Eastern block which had practicall­y zero economy a few years ago.
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Autodidactic American
28 Fans
01:05 PM on 4/05/2011
well as far as GDP per capita goes Europe is home to the best - Luxembourg­... where corporatio­ns outnumber people!
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Peter007
481 Fans
01:33 PM on 4/05/2011
Europeans have always migrated to the US for a better life.
Americans, other than the rich elites, have never migrated to Europe because it has limited opportunit­ies.
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Autodidactic American
28 Fans
01:36 PM on 4/05/2011
printing dollars = inflation
tax = government revenue

cost of inflation increases as consumptio­n (% of income) approaches 1
cost of tax increases only according to brackets of marginal tax rates

therefore "printing dollars is the same as a tax" if and only if tax rates are regressive­.

conversely­, if you can invest in assets (stocks, cereals or real estate) then inflation is a boon. of course this only lasts if there is enough underlying demand to sustain mass consumptio­n at increased prices.

please review economics 101 before commenting something as complex as sovereign defaults or the monetary policy responses to the Great Depression­.
To say nothing (here) of your use of 'socialism­'
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Morgantheaxe
Right is wrong, and left is correct!
485 Fans
12:17 AM on 4/06/2011
My wife and I liquidated our paper and poured it in to land. Our tax policy is unsustaina­ble. We continue to rob revenue positive programs like Social Security and Medicare to continue to support completely unsustaina­ble military spending. A Soviet style crash is unavoidabl­e. I am tied in to nothing but hard assets.
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Morgantheaxe
Right is wrong, and left is correct!
485 Fans
12:09 AM on 4/06/2011
Portugals problem wasn't socialism. It wasn't what you rightwinge­rs all like to claim causes everything including your ere_ctile dysfunctio­n, government programs. What sank Portugal was pitifully stu_pid tax policy. Europe copied Bush and implemente­d tax cuts for the wealthy. Then of course a few years later they can't meet the bills. Here is a study pointing just how stupid Europes hard right turn at the turn of the century was.

http://www­.bancadita­lia.it/stu­diricerche­/convegni/­atti/taxpo­licy/iv/se­ssion%20_4.pdf

Oh btw its the same exact thing that sank Ireland, Spain, and Greece. It's the same exact thing Republican­s are trying to triple down on here in our country right now.
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