STRUGGLING Eurozone officials received another slap from ratings agencies last night as Moody’s downgraded Portugal further into junk territory and said it was likely the sovereign would need another bailout.
The agency kept Lisbon on a “negative outlook” on the grounds that it is likely to “require a second round of official financing before it can return to the private market” -- but also said that another rescue could be problematic because the country is also on course to miss the targets that are a condition of its first bailout.
Moody’s added that its decision was also driven by the “increasing possibility” that the private sector would be asked to share in the cost of a new bailout, which is likely to precipitate a “default” rating under current plans.
The move follows the agency’s announcement yesterday morning that the EU’s carefully crafted “Greek Brady plan” to get banks involved in Athens’ new bailout would lead to impairments on Greek debt under accounting rules – effectively constituting a default under the agency’s guidelines.
Moody’s is the second agency to throw the plan into chaos, after S&P said that it would likely lead to Greece being downgraded to “default”, a credit event that would force the ECB to bend its rules in order to keep accepting Greek debt as collateral.
Meanwhile, the German constitutional court has begun hearing evidence on the legality of contributing to the Greek bailout.
FAST FACTS | PORTUGUESE FINANCES
● Portugal had a total deficit of 9.1 per cent of GDP last year and gross debt of 93 per cent of GDP.
● The average maturity of its debt is 6.1 years.
● The European Commission has recommended a fiscal tightening of 1.25 per cent of GDP by 2013.