Portugal downgrade rekindles Europe debt crisis
Thursday, 15 July 2010
LISBON, July 14 (AFP): Europe's debt crisis flared anew yesterday as Portugal suffered a cut to its credit rating and European finance ministers battled to dispel fears about the health of the banking sector.
Greece returned to the international debt markets for the first time since securing an EU-IMF bailout in May and the French government approved a draft pension reform plan that would lift the retirement age by two years.
The euro hit a one-week low against the US currency, falling to 1.2533 dollars after international ratings agency Moody's Investor Services cut its rating on Portugal's government debt by two notches.
But the single currency later rebounded, rising to 1.2626 dollars as investors deemed the Greek bond issue to have been a success, as the yield-or interest rate-offered was lower than had been expected, analysts said.
Moody's, however, was less sanguine about Portugal.
"The Portuguese government's financial strength will continue to weaken over the medium term," the agency warned in a statement, adding that the situation would only be made worse by the country's dismal economic growth outlook.
Moody's analyst Anthony Thomas said it was not yet clear whether labour market and other reforms rushed through by the embattled government would boost growth enough to reverse the country's deteriorating debt trends.
"This would imply that Portugal's government would remain relatively highly indebted for the foreseeable future," he said.
Later Portugal's central bank raised its 2010 growth forecast to 0.9 per cent from 0.4 per cent previously, but cut its estimate for next year to 0.2 per cent from 0.8 per cent.
Moody's downgrade added to pressure on Lisbon to take dramatic action to tackle its debt after another international ratings agency, Standard & Poor's, cut Portugal's credit rating in April.
Europe's debt drama has recently morphed into a nascent banking crisis amid financial market concerns that European bank balance sheets may be burdened with Greek, Spanish and Portuguese bonds, threatening their solvency.
Greece returned to the international debt markets for the first time since securing an EU-IMF bailout in May and the French government approved a draft pension reform plan that would lift the retirement age by two years.
The euro hit a one-week low against the US currency, falling to 1.2533 dollars after international ratings agency Moody's Investor Services cut its rating on Portugal's government debt by two notches.
But the single currency later rebounded, rising to 1.2626 dollars as investors deemed the Greek bond issue to have been a success, as the yield-or interest rate-offered was lower than had been expected, analysts said.
Moody's, however, was less sanguine about Portugal.
"The Portuguese government's financial strength will continue to weaken over the medium term," the agency warned in a statement, adding that the situation would only be made worse by the country's dismal economic growth outlook.
Moody's analyst Anthony Thomas said it was not yet clear whether labour market and other reforms rushed through by the embattled government would boost growth enough to reverse the country's deteriorating debt trends.
"This would imply that Portugal's government would remain relatively highly indebted for the foreseeable future," he said.
Later Portugal's central bank raised its 2010 growth forecast to 0.9 per cent from 0.4 per cent previously, but cut its estimate for next year to 0.2 per cent from 0.8 per cent.
Moody's downgrade added to pressure on Lisbon to take dramatic action to tackle its debt after another international ratings agency, Standard & Poor's, cut Portugal's credit rating in April.
Europe's debt drama has recently morphed into a nascent banking crisis amid financial market concerns that European bank balance sheets may be burdened with Greek, Spanish and Portuguese bonds, threatening their solvency.