Portugal's Debt Rating Downgraded By Fitch

LONDON — Portugal had its credit rating downgraded Thursday by the Fitch Ratings agency amid mounting concerns over the country's ability to raise money in the markets to finance its hefty borrowings.

Fitch said it was reducing its rating on the country's debt by one notch to A+ from AA- and warned that further downgrades may be in the offing by maintaining its negative outlook.

"The downgrade reflects an even slower reduction in the current account deficit and a much more difficult financing environment for the Portuguese government and banks than incorporated into Fitch's previous rating (in March), as well as a deteriorating near-term economic outlook," Fitch said in a statement.

Fitch's downgrade follows a warning earlier this week from rival Moody's Investor Services that it may cut its A1 rating on Portugal by a notch or two because of uncertain economic growth, the high cost of borrowing on global markets and worries about the banking sector.

Fitch's reasoning is very similar and is likely to stoke renewed speculation that Portugal could well be the next country using the euro in need of financial help from its partners in the European Union and the International Monetary Fund – Greece and Ireland have already suffered the ignominy of being bailed out.

The agency said the Portuguese government would likely meet its target of reducing its budget deficit to 7.3 percent of national income this year, but voiced concerns that this is heavily dependent on one-time measures, which don't make a dent on the long-term state of the public finances.

As a result, Fitch said the government will find it "extremely challenging" getting the budget into shape, especially if, as the agency expects, the economy falls into recession next year. The Portuguese government aims to reduce the budget deficit to 3 percent of GDP by 2012 and to just 2 percent of 2013, which would be extremely difficult if the eurozone's smallest economy starts to contract again – in effect, lower growth means lower tax receipts and higher social spending, hardly conducive to budgetary health.

"Failure to meet its 2011 budget headline and structural deficit targets would erode confidence in the medium-term sustainability of public finances that underpins Portugal's current sovereign ratings," Fitch said.

Comments

[Steve Rockett]

12:35 PM on 12/26/2010

The whole European Union is going to go through rough patches. Follow the German economy, but watch the Swiss like hawks. They really control the wealth of Europe.

[WonderingNThinking]

07:44 AM on 12/26/2010

Bailout and austerity next.

[Steve Rockett]

12:40 PM on 12/26/2010

Not necessarily. By lowering the bond status, this will invite investors who want to make a bigger profit to buy the bonds. Austerity, yes, because they have to pay back the loans and become a more productive nation.

[raphaelbonee]

07:23 PM on 12/25/2010

Debt equity assets. The capital structuring of a country more and more takes on a corporate look.

Finance with longterm debt if you got real assets like minerals, oil and gas, things you/creditors can sell off.

Finance with equity if you got vapor ware like intellectual capital, historical ambiance tourist attractions.

Finance internal if you make something that other people want(best of 3 options unless you're a country that like corporations that don't protect their patents through patent fees, are willing to give your standard of living away by not imposing tariff under the rubric of "free trade". (not to be snarky but you know what they call those kind of corporations ... "bankruptcy candidates")).

Keep money on hand to cover time it takes to process raw materials into cash in hand(sold) finished product. Called working capital and if you finance through longterm debt you never have to worry about it.

Only involve yourself in projects with positive net present values(npv's).

(Note to self war always always always has negative npv for loser unless its a war with america. Then the loser actually makes money, get's it's country rebuilt with the latest stuff and gets a corrupt inept puppet dictator to make appearances at the un.) The way out for troubled european countries seems pretty clear "go to war with america")

[Steve Rockett]

12:42 PM on 12/26/2010

Maybe they should declare war on Italy first, before they tackle us.

[raphaelbonee]

07:19 PM on 12/25/2010

Debt equity assets. The capital structuring of a country more and more takes on a corporate.

Finance with longterm debt if you got real assets like minerals, oil and gas, things you/creditors can sell off.
Finance with equity if you got vapor ware like intellectual capital, historical ambiance tourist attractions.

Finance internal if you make something that other people want(best of 3 options unless you're a country that like corporations that don't protect their patents through patent fees, are willing to give your standard of living away by not imposing tariff under the rubric of "free trade". (not to be snarky but you know what they call those kind of corporations ... "bankruptcy candidates")).

Keep money on hand to cover time it takes to process raw materials into cash in hand(sold) finished product. Called working capital and if you finance through longterm debt you never have to worry about it.

Only involve yourself in projects with positive net present values(npv's).

(Note to self war always always always has negative npv for loser unless its a war with america. Then the loser actually makes money, get's it's country rebuilt with the latest stuff and gets a corrupt inept puppet dictator to make appearances at the un.) The way out for troubled european countries seems pretty clear "go to war with america")

[jo smith456]

09:35 PM on 12/24/2010

Some of their bankers partnered with the American biggest banks which led the financial chaos.

[kenhamlett]

05:05 PM on 12/24/2010

Greece, Ireland, Portugal, then Spain, Italy, and so on. We need to be paying attention to this problem as it spreads. The problem of incurring unmanageable debt is one that is ever-growing in our own economy -- an additional trillion dollars just last week -- but still we seem to enjoy dancing on the lip of the volcano. Two weeks ago, the President said that this was our most pressing problem. Then, a few days later, he agreed to and signed the tax cut/inheritance cuts for rich folks and exploded our deficit to an even more worrisome level. Apparently, he did not pay attention to what he himself said the week before. Unfortunately for us, not paying attention is not going to cause the problem to go away!

[ritamary]

07:22 PM on 12/24/2010

All Republican Senators signed a letter to Obama telling him that nothing would get done until they got the tax cuts for their constituents, the very rich. So Obama did not add to the national debt all on his own.

[kenhamlett]

07:49 PM on 12/24/2010

I completely agree that the Republican position favored the cuts -- we knew that all along. But, it was the President who promised to eliminate them, and it was the President who -- having huge margins in the Congress -- kept waiting and waiting until he lost momentum after the election to even begin negotiating an outcome. It was then the President and his staff who caved to those same Republicans. I do not support them for one moment. But, on policy after policy, the President ends up in their corner instead of following the path he promised to follow.

[Sundialsvc4]

10:15 AM on 12/27/2010

Inviting though it may be to "blame the other party," I submit that a much better thing to do is to "blame it on the crime." When Members of Congress can, and do, accept more than $1 million per person per day in ... ahh ... "contributions," then the simple wisdom of Article 2, Section 4, Word 25 is proved again every day.

When you are a "civil officer," you can make a boat-load of cash ... not by doing your job, but by seeing to it that your job is never carried out. For the right price.

And who pays for your malfeasance? Hundreds of millions of people do. On the world's stage, billions of people.

This has nothing to do with "Republican vs. Democrat in the United States," and not a single individual ... including Mr. Obama ... has hands that are not soaked in other people's blood and treasure.

[WonderingNThinking]

07:47 AM on 12/26/2010

I agree. I called it on Greece, Ireland, and Portugal, and then Spain and Italy. Sad, but it's coming true. I think Germany would be last on the list. Not sure who will come after Spain and Italy, perhaps France. Once we get to France, I think we're at the next level of pain.

[ejreed]

02:10 PM on 12/24/2010

coal in the stocking...
Portugal Downgraded by Fitch
The rating agency Fitch Thursday downgraded the Portuguese credit by one notch, from AA- to A+ despite a reduction in the country's external debt. The agency also issued a recession prognosis for the country in next year. http://www.newslook.com/videos/277991-portugal-downgraded-by-fitch?autoplay=true

[MikeyJaii]

02:37 AM on 12/24/2010

When will people see the dollar is worthless?

[WonderingNThinking]

07:48 AM on 12/26/2010

When they stop calling it inflation and thinking the inflation will pass.

[jmdziuban1]

08:33 PM on 12/23/2010

I fail to see how this helps anything. Portugal met its targets, so now are introduced concerns about the future. Portugal may not meet next years targets, Portugal may fall into recession, Portugal has difficulty raising capital from the markets. This merely makes Portugal's situation more difficult, more likely to deteriorate. Is that the plan?

Okay, you gave us the pound of flesh, didn't think you could manage it, now we want the pint of blood.

[GeorgieMark]

05:34 AM on 12/24/2010

It's part self fulfilling prophesy, part speculation.
The Eurozone has been teetering on the verge of disintegration ever since Greece made the stunning admission they'd been lying to the EU about their poor finances 3 years ago.

In hindsight the other members of the Eurozone should've sent them (Greeks) packing thereafter. Kick them out of the Eurozone, force them back to their currency, plunge Greece into a depression and have Greece tackle its debt problems on its own, thus sandboxing the problem.

But no! Greece went cup in hand asking for bailout money and for reason's I'll never understand Greece received aid. And it's not a bailout ala GM...oh no... Greece's eventual default (Greece will go belly up, the question is when) and the massive impact it caused throughout the Eurozone, has wet the appetites of speculators who are behaving like wolves.

Portugal is the Trojan Horse to Spain. With Spanish companies and banks holding Portuguese debt there is little speculation in my mind that after the Portuguese onslaught dawns the bigger and much bloodier massacre, that of Spain.

Verily it is a Greek tragedy.

[jo smith456]

08:00 PM on 12/23/2010

EU's financial leaders should be more aware of the weaknesses of the American financial system (e.g. corruption of the Fed Reserve system) where there's no leveling of the playing field, so to speak.

[SeenItBefore]

07:39 PM on 12/23/2010

Just returned from a couple of months in Portugal. Nice place, wonderful people. Spent some of the time in Spain and we found wonderful people there and it too, was nice.

The problem is corruption in the government.

Thank goodness we don't have that problem.

[ritamary]

07:29 PM on 12/24/2010

Oh yeah. The integrity of American politicians is known worldwide.

[WonderingNThinking]

07:48 AM on 12/26/2010

I think the poster was being sarcastic.

[Marc Vidal]

05:21 PM on 12/23/2010

The problem is not Portugal, is Spain. There are charts that clearly show that the cost of insuring the debt of the peripheral countries of the region with credit default swaps (CDS) is at a record high. Investors speculate that Portugal and Spain to Greece and Ireland will continue to ask for help from the European Union and the International Monetary Fund.

Portugal's economic growth has been less than 1 percent per year over the last decade and the government predicts will fall to 0.2 percent next year. In Spain, where the unemployment rate exceeds 20 percent, household spending contracted in the third quarter after the government raised the sales tax and made major budget cuts in at least 30 years.

"It seems inevitable that more bailouts, but not solve anything, " said Bill Blain, Matrix strategist in London. "The real test will be Spain. How inevitable is it? Not 100 percent, but it certainly is a strong possibility. "A bailout of Spain would cost 420,000 million euros as Jennifer McKeown, European economist at Capital Economics senior Ltd. in London.

I have the conviction that the cost of technically inasumble Spanish rescue is largely because the hole they do not provide those 420,000 million should be added to the low valuations of assets that complement and even now are not in the financial institutions' balance sheets

[GeorgieMark]

05:44 AM on 12/24/2010

I believe that the problem really begun with Greece.

Greece was feeding the EU for a good 7 years, false data about its finances. The EU's decision to bail out Greece merely wet the appetites of speculators who are now picking on Ireland and Spain. Instead the EU should've shown the exit door to Greece sandboxing the problem.

Portugal is the Trojan horse leading to Spain.

[WonderingNThinking]

07:49 AM on 12/26/2010

I think the problem really began with the banking system oligarchy.

[DFL]

03:46 PM on 12/23/2010

Hey Portugal, back here we have a bunch of rightwing bullies blowing up our deficits to the point of no return so they can cut everything and turn america into a third world nation!

[Lorianne]

02:36 PM on 12/23/2010

Dominoes