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Portugal downgrade increases bailout pressure

Portugal downgrade increases bailout pressure
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There has been another ratings downgrade for Portugal. Moody’s cut its creditworthiness rating to Baa1 from A3, followed similar moves by the other agencies – Standard & Poor’s and Fitch.

Moody’s said it believes Portugal’s new government will need to seek an EU bailout urgently after the general election in early June.

There was also a report that the country’s biggest banks have said they no longer have the funds to buy government bonds.

Business daily Jornal de Negocios said bank bosses had met the governor of the Bank of Portugal on Monday and told him that Lisbon should secure short-term financing to soothe investor concerns until the election.

A spokesman at Portugal’s central bank would not comment on the Jornal story.

Andre Rodrigues, a banking analyst at Caixa Investment Banking, said the banks were responding to the depreciation of the sovereign debt on their books, their own liquidity problems and forthcoming European financial stress tests.

“For banks, it’s not a theoretical issue but a practical one,” said Rodrigues. “It’s an additional pressure factor to push Portugal into seeking a bailout or an interim loan.”

The ratings downgrades have come since the minority Socialist government resigned last month after parliament rejected an austerity package.

The events have raised pressure on Lisbon, which has struggled for months to shake off expectations that it will have to follow Greece and Ireland in seeking a bailout.