The European Commission has severely criticised Moody’s credit agency for slashing Portugal’s debt rating.
Brussels accused Moody’s of “questionable conduct” for hacking four grades off Portugal’s rating, consigning the country’s credit status to junk.
It is another obstacle for those who are trying to manage the country’s debt mountain.
European Commission President Jose Manuel Barroso said “Yesterday’s decisions by one rating agency does not provide for more clarity. They rather add another speculative element to the situation.”
Moody’s said one reason for its steep downgrade was the EU’s crisis management – specifically the attempt to make banks and insurers share the burden of all future rescues. It believes that will only discourage new private sector lending.
European banks have nearly 339.5 billion euros worth of loans in Portugal; that is private lending as well as government bonds.
British banks have 17 billion euros worth and US lenders 3.7 billion.
Portuguese economist Ricardo Valente said “One reason for Moody’s downgrade is because it believes the Portuguese government will have to give more support to the country’s banks than the 12 billion euros that was anticipated in Lisbon’s agreement with the IMF, ECB and EU. Moody’s says that’s not enough.”
Analysts said the downgrade shows how the Greek crisis is poisoning other weak countries in the euro zone, regardless of what they’re doing to try to shrink their debt and return their economies to growth.