Portugal’s credit rating has been slashed by four levels to the bottom investment grade known as junk territory.
The move by Moody’s Investors Service, one of the three big ratings agencies, came among heightened concerns Lisbon will not be able to achieve its goals of reducing its deficit and stabilising its debt.
Portugal’s new centre right prime minister, Jose Passos Cuelho, has pushed through a package of austerity measures including a new one-off tax to meet the financial assistance agreement with the EU and International Monetary Fund.
Lisbon responded immediately to the news saying Moody’s had failed to take into account the strong political support in the country for the austerity programme which they unveiled last week.
Portugal now joins Greece as the only other country in the eurozone to be rated at the lowest level.